Q1 2025 AvalonBay Communities Inc Earnings Call

Unknown Executive: Good morning, ladies and gentlemen, and welcome to Avalon Bay's Communities first quarter 2025 earnings At this time, all participants are in a listen-only Following remarks by the company, we will conduct a question and answer session. You may enter the question and answer queue at any time during this call by pressing star If a question has been answered and you wish to remove yourself from the queue, please press star.

Good morning, ladies and gentlemen, and welcome to Avalon base communities first quarter 2025 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.

You may enter the question and answer queue at any time during this call by pressing star. One. If your question has been answered or you wish to remove yourself from the queue. Please press star two.

Unknown Executive: If you are using a speakerphone, please lift the handset before asking your question, and we ask that you refrain from typing or using or having your cell phones turned off or muted during the questioning.

You are using a speaker phone please lift the handset before asking your questions and we ask that you refrain from typing or using our having your cellphone is turned off for muted during the question and answer session. Your host for today's conference call is Mr. Jason Reilley, Vice President of Investor Relations. Mr. Riley you may begin your conference.

Jason Reilley: Your host for today's conference call is Mr. Jason Reilley, Vice President of Investor Relations. Mr. Reilley, you may begin your Thank you, Julian, and welcome to AvalonBay Communities first quarter 2025 earnings conference call. There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially.

Speaker Change: Thank you Julian and welcome to Avalonbay communities first quarter 2025 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 on.

Jason Reilley: 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 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.AvalonBay.com forward slash earnings. And we encourage you to refer to this information during the review of our operating results and financial performance.

Speaker Change: Certainties in yesterday afternoon's press release as well as in the company's Form 10-K, and Form 10-Q filed with the SEC.

Speaker Change: 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 paid dotcom Ford Slash earnings and we encourage you to refer to this information during the review of.

Speaker Change: Our operating results and financial performance and with that I'll turn the call over to Dan Shaw CEO and president of Avalonbay communities for his remarks.

Ben Schall: And with that, I'll turn the call over to Ben Shaw, CEO and President of AvalonBay Communities for his remarks. Ben. Thank you, Jason.

Dan Shaw: Thank you Jason I'm joined today by Kevin O'shea, our Chief Financial Officer, Sean Breslin, Our Chief operating Officer, and Matt Berenbaum, Our Chief investment Officer.

Ben Schall: I'm joined today by Kevin O'Shea, our Chief Financial Officer, Sean Breslin, our Chief Operating Officer, and Matt Birenbaum, our Chief Investment Officer.

Ben Schall: In keeping with our custom, we've also posted an earnings presentation, which we will reference during our prepared remarks, beginning on slide four. Recognizing that we are in a period of heightened uncertainty regarding the impact of policy actions on the broader economy, I want to start by emphasizing that we are very well positioned, given our portfolio makeup, our unique set of strategic capabilities, and our preeminent balance sheet, to continue to deliver superior earnings growth for shareholders. We provide high quality homes and leading apartment markets across the country in one of the most durable real estate asset classes with high margins and relatively low capex.

Dan Shaw: And keeping with our custom we have also posted an earnings presentation, which we will reference during our prepared remarks, beginning on slide four.

Dan Shaw: Recognizing that we are in a period of heightened uncertainty regarding the impact of policy actions on the broader economy I want to start by emphasizing that we are very well positioned given our portfolio make up our unique set of strategic capabilities and R. P. M. In our balance sheet to continue to deliver superior earnings growth for shareholders.

Dan Shaw: We provide high quality homes, and leading apartment markets across the country.

And one of the most durable real estate asset classes with high margins and relatively low capex.

Ben Schall: We continue to proactively reshape our portfolio to optimize future returns, as I will touch on more in a moment. Our operating model transformation, including our leadership in technology and centralized services, continues to drive superior growth from our existing asset base and in new investment opportunities, as we've detailed in prior quarters. As we look ahead, we want to particularly emphasize the earnings growth that is set to come from the development that we have underway, $3 billion of projects match funded with attractively priced capital and projects where we have substantially locked in the cost of construction. As these projects lease up this year and next, they will produce a meaningful, incremental stream of earnings that is unique to Avalon Bay.

Dan Shaw: We continue to proactively reshape our portfolio to optimize future returns as I will touch on more in a moment.

Dan Shaw: Our operating model transformation, including our leadership in technology and centralized services continues to drive superior growth from our existing asset base and a new investment opportunities as we've detailed in prior quarters.

Dan Shaw: As we look ahead, we want to particularly emphasize the earnings growth that is set to come from the development that we have underway $3 billion of projects match funded with attractively priced capital and projects, where we have substantially locked in the cost of construction.

Dan Shaw: As these projects to lease up this year and next that will produce a meaningful incremental stream of earnings that is unique to Avalon Bay.

Ben Schall: As we evaluate future investment opportunities, our balance sheet and liquidity position are as strong as they've ever been, as Kevin will further emphasize. And for our next cohort of development starts, we remain focused on delivering 100 to 150 basis points of spread between development yields and both our cost of capital and underlying market cap rates. We are also uniquely positioned among our peers in having raised $890 million of equity on a forward basis at an average gross price of $226 per share, which we expect to deploy into accretive development. Looking ahead, we feel well positioned to continue to execute against our strategic initiatives across a range of macroeconomic scenarios, and we will stay nimble, from operations to our capital allocation decisions, as we have consistently done over time and throughout cycles.

Dan Shaw: As we evaluate future investment opportunities our balance sheet and liquidity position are strong as they've ever been as Kevin will further emphasize.

Dan Shaw: And for our next cohort of development starts we remain focused on delivering 100 to 150 basis points of spread between development yields and both our cost of capital and underlying market cap rates were.

We are also uniquely positioned among our peers and having raised $890 million of equity on a forward basis at an average gross price of $226 per share, which we expect to deploy into accretive development.

Dan Shaw: Looking ahead, we feel well positioned to continue to execute against our strategic initiatives across a range of macroeconomic scenarios and we will stay nimble from operations to our capital allocation decisions as we have consistently done overtime and throughout cycles.

Ben Schall: Slide 5 highlights our broadly diversified portfolio, which is well positioned to continue to deliver superior growth. In terms of markets, 47% of our portfolio is in our established regions on the East Coast. 41% in our established regions on the West Coast, and now 12% in our expansion regions.

Dan Shaw: Slide five highlights our broadly diversified portfolio, which is well positioned to continue to deliver superior growth.

Dan Shaw: In terms of markets, 40% of our 47% of our portfolio is in our established regions on the east coast, 41% and our established regions on the West Coast, and now 12% and our expansion regions.

Ben Schall: At the sub-market level, we have continued to rotate capital to the suburbs in response to demographic and other housing trends, increasing our allocation there to 73%. And in terms of product, we think investors often overlook that 41% of our portfolio are garden communities, 41% are mid-rise buildings, and 18% are high-rise communities, providing a breadth of offerings and price points to meet customer needs.

Dan Shaw: At the sub market level, we continue to rotate capital to the suburbs and response to demographic and other housing trends, increasing our allocation there to 73%.

Dan Shaw: And in terms of product, we think investors often overlook that 41% of our portfolio, our garden communities, 41% or mid rise buildings, and 18% of our high rise communities, providing a breadth of offerings and price points to meet customer needs.

Ben Schall: Turning to slide six, our established regions are benefiting from several tailwinds including strong occupancy and very limited new deliveries this year and in 2026, which should support healthy pricing power. To be more specific, we are projecting that deliveries in our established regions will drop to 80 basis points of existing stock in 2026, which equates to just 45,000 units across all those markets. For more information visit www.fema.gov minuscule levels of new deliveries that we have not seen in 20 years.

Dan Shaw: Turning to slide six our established regions are benefiting from several tailwind, including strong occupancy and very limited new deliveries this year and in 2026, which should support healthy pricing power.

Dan Shaw: To be more specific we are projecting that deliveries in our established regions will drop to 80 basis points of existing stock and 2026, which equates to just 45000 units across all those markets.

Dan Shaw: Miniscule levels of new deliveries that we have not seen in 20 years.

Ben Schall: And while we are pleased with the portfolios we have curated in our expansion regions, we do expect these markets to continue to face operating softness until deliveries decline and market occupancies rebuild. On the flip side, this softness provides opportunities as we execute on our longer-term portfolio optimization goals, selectively increasing our allocation to our chosen expansion region.

Dan Shaw: And while we are pleased with the portfolios, we have curated and our expansion regions. We do expect these markets to continue to face operating softness until deliveries decline and market Occupancies rebuilt.

Dan Shaw: On the flip side. This softness provides opportunities as we execute on our longer term portfolio optimization goals selectively increasing our allocation to our chosen expansion regions.

Ben Schall: Continuing on slide seven, rental affordability has also improved in our established regions, given solid income growth in recent years, resulting in rent to income ratios below pre COVID levels. And finally, the relative affordability of renting compared to home ownership, given both elevated home values as well as mortgage rates, continues to provide a favorable backdrop for our operating fundamentals.

Dan Shaw: Continuing on slide seven.

Dan Shaw: So affordability has also improved in our established regions given solid income growth in recent years, resulting in rent to income ratios below pre COVID-19 levels.

Dan Shaw: And finally, the relative affordability of renting compared to homeownership, given both elevated home values as well as mortgage rates continues to provide a favorable backdrop for our operating fundamentals.

Ben Schall: Our portfolio positioning translated into healthy Q1 results and, as Sean will discuss further, is evident in our healthy operating metrics heading into peak leasing season. As noted on slide eight, we produced strong core FFO growth of 4.8% in Q1 relative to last year and exceeded our prior Q1 guidance by 3 cents. Our outperformance in Q1 reflected $0.01 from revenue related to slightly higher occupancy and $0.02 of favorable operating expenses, of which approximately half is timing related.

Dan Shaw: Our portfolio of positioning translated translated into healthy Q1 results and as Sean will discuss further is evident in our healthy operating metrics heading into peak leasing season.

Dan Shaw: As noted on slide eight we produced strong core <unk> growth of four 8% in Q1 relative to last year and exceeded our prior Q1 guidance by <unk> <unk>.

Dan Shaw: Our outperformance in Q1 reflected one cent from revenue related to slightly higher occupancy and to a favorable operating expenses of which approximately half is timing related.

Ben Schall: Our Q2 guidance is generally consistent with our original expectations, with slide 9 providing the components of change relative to Q1. the main driver of which being the sequential, seasonal uptick and operating expenses we experience each year. We are also reaffirming our full year 2025 outlook, which, as originally expected, includes sequential internal and external growth in the second half of the year.

Our Q2 guidance is generally consistent with our original expectations with slide nine providing the components of change relative to Q1.

Dan Shaw: The main driver of which being the sequential seasonal uptick in operating expenses, we experienced each year.

Dan Shaw: We are also reaffirming our full year 2025 outlook, which as originally expected include sequential internal and external growth in the second half of the year.

Sean Breslin: With that, I'll turn it to Sean to further discuss the operating environment. All right, thanks, Ben. Moving to slide 10. As Ben noted, Q1 same store revenue performance was slightly ahead of our plan, driven by modestly higher occupancy than anticipated. In terms of operating metrics, performance was healthy in Q1 and we're very well positioned as we head into the prime leasing season. Resident turnover continues to set new historical lows, which supports higher physical occupancy. For the month of April specifically, occupancy was roughly 30 basis points above the same time last year. Additional, our near term inventory to lease is currently trending about 30 basis points below last year, which supports healthy pricing on new leases and renewals, and is reflected in the nice uptick we've experienced as we move through Q1 into April.

Dan Shaw: I'll turn it to Shawn to further discuss the operating environment.

Shawn: Alright, Thanks Pam.

Speaker Change: Moving to slide 10, as Ben noted Q1 same store revenue performance was slightly ahead of our plan driven by modestly higher occupancy than anticipated.

Speaker Change: In terms of operating metrics performance was healthy in Q1, and we're very well positioned as we head into the prime leasing season.

Speaker Change: Resident turnover continues to set new historical lows, which supports higher physical occupancy.

Speaker Change: For the month of April specifically occupancy was roughly 30 basis points above the same time last year.

Speaker Change: Additional our near term inventory at least is currently trending about 30 basis points below last year, which supports healthy pricing on new leases and renewals and as reflected in the nice uptick we've experienced as we've moved through Q1 into April.

Sean Breslin: In terms of regional trends that may be of interest, the D.C. metro area continues to perform as expected with occupancy and availability generally in line with last year's levels. Additionally, we've actually experienced a modest reduction in the number of lease breaks year over year over the last few months. We started to hear from prospects and residents about the level of uncertainty in the job market, but to date the velocity of activity and pricing in the region has not been impacted. About 12% of our resident base is employed by the government, so we're certainly monitoring the pace of leasing, renewal acceptance, and other metrics very closely.

Speaker Change: In terms of regional trends that may be of interest.

Speaker Change: D C Metro area continues to perform as expected with occupancy and availability generally in line with last year's levels.

Speaker Change: Additionally, we've actually experienced a modest reduction in the number of lease brakes year over year over the last few months.

Speaker Change: We started to hear from prospects and residents about the level of uncertainty in the job market.

Speaker Change: But to date, the velocity of activity and pricing in the region has not been impacted.

Speaker Change: About 12% of our resident base is employed by the governments have are certainly monitoring the pace of leasing renewal acceptance and other metrics very closely.

Sean Breslin: In terms of the tech regions, notably Seattle and Northern California, we've continued to see healthy performance in Seattle, consistent with our expectations, which also had very strong performance in 2024, due to relatively strong job growth, return to office mandates from Amazon, Microsoft and others, and the positioning of our primarily suburban portfolio in the region, which has benefited from minimal new supply. Northern California, specifically San Jose and San Francisco, continue to improve and at a pace that's slightly ahead of our original expectations. Performance in San Jose picked up at the end of last year, but San Francisco really started to gain momentum at the beginning of this year.

Speaker Change: In terms of the tech regions, notably Seattle, and Northern California, We've continued to see healthy performance in Seattle, consistent with our expectations, which also had very strong performance in 2024 due to relatively strong job growth return to office mandates from Amazon, Microsoft and others.

Speaker Change: And the positioning of our primarily suburban portfolio in the region.

Speaker Change: Which has benefited from minimal new supply.

Speaker Change: Northern California, specifically, San Jose and San Francisco continued to improve and at a pace is slightly ahead of our original expectations.

Speaker Change: Performance in San Jose It picked up at the end of last year, but San Francisco really started to gain momentum at the beginning of this year we're.

Sean Breslin: We're currently more than 96% occupied across the region, about 50 basis points higher than last year, with San Francisco leading San Jose and the East Bay at 97.2%. Additionally, our year-to-date average asking rent has increased roughly five percent. Led by San Francisco, a year-to-date gain is roughly seven percent. In LA, while we gained a modest amount of occupancy sequentially from Q4 to Q1, we haven't been able to realize as much of an improvement in rate as we would have anticipated moving through Q1 and into April. Currently, availability and occupancy are roughly in line with last year, however, year-to-date asking rent growth is below historical norms at just 3%.

Speaker Change: We're currently more than 96% occupied across the region of about 50 basis points higher than last year with San Francisco, leading San Jose and the East Bay at 97, 2%.

Speaker Change: Additionally, our year to date average asking rent has increased roughly 5%.

Speaker Change: Led by San Francisco and year to date gains of roughly 7%.

Speaker Change: L. A well began to a modest amount of occupancy sequentially from Q4 to Q1, we haven't been able to realize as much of an improvement in rate as we would've anticipated moving through Q1 and into April.

Speaker Change: Currently availability and occupancy are roughly in line with last year. However year to date asking rent growth is below historical norms at just 3%.

Sean Breslin: We'll need to see better job growth in LA, which has been weak recently, to experience stronger performance throughout the remainder of this year.

Speaker Change: I'll need to see better job growth in L. A which has been weak recently to experience stronger performance throughout the remainder of this year.

Sean Breslin: Looking forward, our overall same-store portfolio metrics are flashing green, and we're heading into the prime leasing season from a position of strength so we can take advantage of opportunities as they unfold or shift our tactics in response to any change in the macro environment.

Speaker Change: Looking forward our overall same store portfolio metrics are flashing green and we're heading into the prime leasing season from a position of strength. So we can take advantage of opportunities as they unfold our shift our task to get tactics in response to any change in the macro environment.

Matt Birenbaum: Now I'll turn it to Matt to address our investment activity. All right, thanks, Sean. I want to provide some more detail on how we are managing risk and optimizing opportunity in our development program, given the current environment. Turning to slide 11, starting with our development already underway, we have 19 projects currently under construction and another four completed last year that are still in lease up at an estimated total capital cost of $3 billion. These investments have been entirely match-funded, meaning we sourced the capital required to build these projects at the same time that we started them, thereby locking in a favorable spread of 100 to 150 basis points between the cost of that capital and the projected initial return on these new investments.

Matt Berenbaum: Now I'll turn it to Matt to address our investment activity.

Matt Berenbaum: Alright, Thanks, Sean.

Matt Berenbaum: To provide some more detail on how we are managing risks and optimizing opportunity in our development program given the current environment turning to slide 11, starting with our development already underway. We have 19 projects currently under construction and another four completed last year that are still in lease up at an estimated total capital cost.

Matt Berenbaum: Cost of $3 billion.

Matt Berenbaum: These investments have been entirely match funded meaning we sourced the capital required to build these projects at the same time that we started them, thereby locking in a favorable spread of 100 to 150 basis points between the cost of that capital and the projected initial return on these new investments.

Matt Birenbaum: And these projects are generally bought out with hard costs locked in with our trade partners within 90 to 120 days of construction start. Across all of this development underway, we are currently running slightly under budget as we have seen some strong buyout savings on some of the more recent starts with subcontractors increasingly aggressive in bidding for work as their backlogs dwindle. As this pre-funded development completes lease-up throughout this year and next, it will drive outsized earnings growth. As shown on the slide, 2025 will be a trough year for us for new occupancies from our development book at 2,300 homes, and only 10% of those new occupancies occurred in the first quarter.

Matt Berenbaum: And these projects are generally bought out with hard costs locked in with our trade partners within 90 to 120 days of construction start.

Matt Berenbaum: Across all of this development underway. We're currently running slightly under budget as we've seen some strong buyout savings on some of the more recent starts with sub contractors increasingly aggressive in bidding for work as their backlogs dwindle.

Matt Berenbaum: As this pre funded development complete lease up throughout this year and next it will drive outsized earnings growth as shown on the slide 2025 will be a trough year for us for new Occupancies from our development book at 'twenty 300 homes, and only 10% of those new Occupancies occurred in the first quarter looking forward, we expect this to rise substantially.

Matt Birenbaum: Looking forward, we expect this to rise substantially through the balance of the year and to grow further to 2,800 homes in 2026.

Matt Berenbaum: Through the balance of the year and to grow further to 2800 homes in 2026.

Matt Birenbaum: Turning to slide 12, our guidance at the beginning of the year anticipated increasing our start volume to $1.6 billion in 2025. These expectations have not changed, but it is important to note that we continue to maintain flexibility on this book of business, and our projected start activity is weighted more towards the back half of the year, with only $240 million started in Q1. If conditions change, we can certainly adjust our plans throughout the year. We have also largely pre-funded this activity through the equity forward transaction we completed last year at a favorable cost of capital.

Matt Berenbaum: Turning to slide 12, our guidance at the beginning of the year anticipated increasing our start volume to $1 6 billion. In 2025. These expectations have not changed but it is important to note that we continue to maintain flexibility on this book of business and our projected start activity is weighted more towards the back half of the year with only 240.

Matt Berenbaum: <unk> started in Q1, if conditions change we can certainly adjust our plans throughout the year. We have also largely pre funded this activity through the equity forward transaction, we completed last year at a favorable cost of capital.

Matt Birenbaum: With all the talk about tariffs, we also thought it would be helpful to provide the conceptual illustration on the right side of the slide, which shows how the total costs of a typical Avalon Bay development break down between land, soft costs, including capitalized interests, and hard costs, with the hard costs further broken down between labor, subcontractor profit, oversight and supervision, and raw materials. Materials costs generally represent about 25 to 30 percent of our overall hard costs and 20 percent of total project costs, and we estimate that with the mix of domestic and imported materials in our projects, the most recent tariffs might increase our total hard costs by about 5 percent, which would drive a roughly 3 to 4 percent increase in our overall total base.

Matt Berenbaum: With all the talk about tariffs. We also thought it would be helpful to provide the conceptual illustration on the right side of the slide which shows how the total cost of a typical Avalon Bay development breakdown between land soft costs, including capitalized interest and hard cost with the hard costs further broken down between labor subcontractor profit Oh.

Matt Berenbaum: Your site and supervision and raw materials materials costs generally represent about 25% to 30% of our overall hard costs and 20% of total project cost and we estimate that with the mix of domestic and imported materials in our projects. The most recent tariffs might increase our total hard costs by about 5%.

Matt Berenbaum: Which would drive a roughly 3% to 4% increase in our overall total basis.

Matt Birenbaum: While this is a meaningful increase and could be enough to tip some projects into being infeasible, these potential headwinds, which vary from project to project, are currently, in most cases, being more than offset by the larger macro backdrop of declining start activity. We have great visibility into this phenomenon because we generally act as our own general contractor on almost all of our developments. And on those jobs we are actively bidding today, our phones are ringing off the hook with deeper bid coverage and stronger subcontractor availability than we have seen in years. While things are certainly subject to change, this bodes well for near-term potential starts.

Matt Berenbaum: While this is a meaningful increase and could be enough to tip some projects into being in feasible. These potential headwinds, which vary from project to project are currently in most cases being more than offset by the larger macro backdrop of declining start activity. We have great visibility into this phenomenon because we generally act as our own general contractor.

Matt Berenbaum: On almost all of our developments and on those jobs. We are actively bidding today, our phones are ringing off the hook with deeper big coverage and stronger subcontractor availability than we've seen in years, while things are certainly subject to change this bodes well for near term potential starts.

Matt Birenbaum: As shown on slide 13, we are also continuing to make steady progress on our longer-term portfolio allocation goals as we execute on our portfolio trading strategy. Since the start of 2024, we have been able to increase our allocation to our expansion regions to 12% and increase our allocation to suburban submarkets to 73% through both buying and selling activity, including closing on the eight-asset portfolio acquisition in Texas that we announced back in late February. That transaction, which was funded with a combination of disposition proceeds and $235 million of equity issued at an attractive price of $225 a share, is underwritten to an initial stabilized yield of 5.1% at a very compelling basis of $230,000 per home for assets that have an average age of 11 years, considerably younger than our existing portfolio.

Matt Berenbaum: As shown on slide 13, we are also continuing to make steady progress on our longer term portfolio allocation goals as we execute on our portfolio trading strategy. Since the start of 2024, we've been able to increase our allocation to our expansion regions to 12% and increase our allocation to suburban submarkets to 73%.

Matt Berenbaum: <unk> through both buying and selling activity, including closing on the eight asset portfolio acquisition in Texas that we announced back in late February.

Matt Berenbaum: That transaction, which was funded with a combination of disposition proceeds and 235 million of equity issued at an attractive price of $2 25, a share is underwritten to an initial stabilized yield of five 1% at a very compelling basis of $230000 per home for assets that have an average age of 11 years.

Matt Berenbaum: Considerably younger than our existing portfolio.

Matt Birenbaum: These acquisitions also provide local operating scale that will have spillover benefits to increase our operating margins at our existing Texas portfolio as well. We're excited about this transaction, which creates a strong foundation for our growth in this expansion region at a good time to be reallocating capital into these markets.

Kevin O'shea: These acquisitions also provide local operating scale. They will have spillover benefits to increase our operating margins at our existing Texas portfolio as well. We're excited about this transaction, which creates a strong foundation for our growth in this expansion region at a good time to be reallocating capital into these markets and with that I'll turn it over to Kevin for an update on the balance sheet.

Kevin O'shea: And with that, I'll turn it over to Kevin for an update on the balance sheet. Financial Strength supports our planned development starts while also providing capacity to fund further attractive investments that may arise.

Kevin O'shea: Thanks, Matt as you can see on slide 14, we enjoy a strong financial position with excellent liquidity and a high level of match funding and a lowly leveraged balance sheet, reflecting our investment grade ratings at a three and a minus from Moody's and S&P.

Kevin O'shea: This financial strength supports our planned development starts while also providing capacity to fund further attractive vessels that may arise.

Kevin O'shea: Additionally, and most uniquely in our sector, we enjoy $890 million in undrawn equity capital that we raised last year at a gross price of $226 per share and an initial cost of about $5 per share. This will be an important driver of future earnings growth as we deploy this capital as the new development starts later this year. Moreover, we recently executed several financing transactions that improve our liquidity and access to cost-effective capital. We renewed and increased our unsecured credit facility to $2.5 billion, up from $2.25 billion, and extended the maturity to April 2030 from September 2026.

Kevin O'shea: Additionally, and most uniquely in our sector, we enjoy $890 million in Undrawn equity capital that we raised last year, the gross price of $2 $26 per share and an initial cost of about 5%.

Kevin O'shea: This will be an important driver of future earnings growth as we deploy this capital to new development starts later this year.

Kevin O'shea: Moreover, we recently executed several financing transactions that improved our liquidity and access to cost effective capital.

Kevin O'shea: We renewed and increased our unsecured credit facility to $2 5 billion.

Kevin O'shea: Two and a quarter billion dollars in.

And extended the maturity to April 2030 from September 2026, and.

Kevin O'shea: In doing so, we also expanded our commercial paper program to $1 billion, up from $500 million previously. This commercial paper program is backstopped by availability under our credit facility and provides us with a cheaper source of floating rate debt than is available under our credit facility. Finally, we closed our four-year $450 million unsecured delayed draw term loan, which we've hedged to an effective fixed interest rate of 4.5%. We intend to draw fully on this term loan by late May. With these transactions and the undrawn forward equity, we now enjoy $2.8 billion of liquidity. As a result of our excellent liquidity and our financial flexibility, we are exceptionally well positioned to fund planned development starts and at the same time respond to challenges and opportunities in the current environment from a position of strength.

In doing so we also expanded our commercial paper program to $1 billion.

Kevin O'shea: Up from $500 million previously.

Kevin O'shea: This commercial paper programs Backstopped by availability under our credit facility and provides us with a cheaper source of floating rate debt is available under our credit facility.

Kevin O'shea: Finally, we closed our four year $450 million unsecured delayed draw term loan, which we've hedged to an effective fixed interest rate of four 5%.

Kevin O'shea: We intend to draw fully on this term loan by late May.

Kevin O'shea: With these transactions and the Undrawn forward equity, we now enjoy $2 $8 billion of liquidity.

Kevin O'shea: As a result of our excellent liquidity and our financial flexibility, we are exceptionally well positioned to fund planned development starts.

Kevin O'shea: Time to solve the challenges and opportunities of the current environment from a position of strength.

Unknown Executive: That concludes our prepared remarks.

Kevin O'shea: That concludes our prepared remarks.

Unknown Executive: Julian, please open the line to questions. To ask a question, please press star 1 or your telephone keypad. Confirmation tone will indicate your line is in the question. You may press star 2 to remove yourself from the... or participants using speaker equipment, it may be necessary to pick up the handset before pressing the start. One moment while we pull.

Julien: Julien Please open the lines for questions.

Kevin O'shea: Thank you.

Speaker Change: We'll now be conducting a question answer session if you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Mr. <unk>. Your line is in the question queue, you May press star two to remove yourself from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

Speaker Change: One moment, while we poll for questions.

Eric Wolfe: And our first question comes from the line of Eric Wolfe with Citibank. Please proceed with your question.

Speaker Change: And our first question comes from the line of Eric Wolfe with Citigroup. Please proceed with your question.

Speaker Change: Hey, Thanks, you touched upon this in your remarks that you're like term effective rent growth has been a little bit lower than last year. So I was just wondering from your perspective is that mainly because you're sort of leaning into occupancy more than you were last year or if there's maybe a little bit of impact from the recent economic disruption that we've seen.

Sean Breslin: You touched upon this in your remarks, but your like-term effect of RENCO has been a little bit lower than last year, so I was just wondering from your perspective if that's mainly because you're sort of leaning into occupancy more than you were last year, or if there's maybe a little bit of impact from the recent economic disruption that we've Yeah, Eric, it's Sean. As it relates to rent change, what I'd say is a couple things. First is, you know, we're generally tracking to plan as it relates to rent change. And as Ben and I noted, debt performance in Q1 was due to slightly higher occupancies.

Sean Breslin: Yeah, Eric it's Sean.

Speaker Change: It relates to rent change what I said.

Speaker Change: Couple of things first is generally tracking to plan.

Speaker Change: As it relates to rent change and there's been and I noted the outperformance in Q1 was due to slightly higher occupancies. So we're basically tracking consistent with what we thought as it relates to last year really a combination of different things, but you know as you might remember last year, we had an earlier acceleration of occupancy at the very beginning of <unk>.

Sean Breslin: So we're basically tracking consistent with what we thought. As it relates to last year, you know, really a combination of different things. But, you know, as you might remember, last year, we had an earlier acceleration of occupancy at the very beginning of the year, January and February. And so we hit harder on rate earlier, I would say in the quarter.

Speaker Change: The year January and February and so we've been hit harder on rate earlier, I would say in the quarter.

Ben Schall: So from a year over year comp standpoint, that's really the delta that you're seeing there in terms of the think of it as the year over year change in asking rent, and what we're seeing this year relative to last You've outlined this plan to grow your expansion markets to 25% of your portfolio, but you also mentioned staying nimble.

Speaker Change: From a year over year comp standpoint.

Speaker Change: That's really the delta that you're seeing there in terms of the think of it as a year over year change in asking rents.

Speaker Change: What we're seeing this year relative to last year.

Speaker Change: That's helpful and you've outlined this plan to grow your expansion markets, 25% of your portfolio, but you also mentioned stay nimble. So I was curious if there was anything that that would happen from an economic or policy perspective that would cause you to rethink that plan just wondering if there's anything in the near term that would cause that allocation to chew.

Ben Schall: So I was curious if there was anything that would happen from an economic or policy perspective that would cause you to rethink that plan. Just wondering if there's anything in the near term that would cause that allocation to change.

Speaker Change: Thanks.

Ben Schall: Eric, it's Ben. As you know, most of our movement towards our 25% target in expansion regions has been through trading. And so, you know, trading of assets out of our generally older assets, out of our established regions, and then reallocating that capital into our expansion regions. So capital markets environment, you know, somewhat sort of agnostic to that, really, I think will become a function of what's happening in underlying transaction markets. They're continuing to be active, but not necessarily overly, you know, fluid. And the extent that, you know, something were to dry up in the transaction markets, that maybe would keep us a little bit slower there.

Speaker Change: Eric it's been.

Speaker Change: As you know most of our.

Speaker Change: Movement towards our 25% target and expansion regions has been through trading.

Speaker Change: So trading of assets out of are generally older assets out of our established regions and then reallocating that capital into our expansion regions.

Speaker Change: So capital markets environment somewhat sort of agnostic to that really I think it will become a function of what's happening in underlying transaction markets.

Speaker Change: They are continuing to be.

Speaker Change: Active.

Speaker Change: The but not necessarily overly fluid and the extent that something were to dry up in the transaction markets that maybe will keep us a little bit slower there makes sense that things are active we will continue to pursue in advance towards our goal.

Ben Schall: The extent that things are active, we'll continue to pursue and advance towards our goal.

Unknown Executive: Thank you.

Speaker Change: Thank you.

Thank you.

Steve Sakwa: Thank you, and our next question comes from Steve Sakow with Evercore ISI, please proceed with your question. I guess, maybe for Matt, I just wanted to circle back on the projected development starts a little bit and just maybe drill down a little deeper on maybe the checklist or things that you're going to be sort of monitoring most closely to kind of say go, no-go. Is it kind of 30,000-foot level things about the economy and overall job growth, or how nuanced is it getting down to the individual project level?

Speaker Change: Our next question comes from Steve CECO with Evercore ISI. Please proceed with your question.

Speaker Change: Yeah. Thanks, I guess, maybe for Matt I, just wanted to circle back on the projected development starts a little bit and just maybe drill down a little deeper on maybe the checklist or things that are you going to be sort of monitoring most closely to kind of say go no go is it kind of 30 level 30000 foot level things about the economy and overall.

Speaker Change: Job growth or how.

Speaker Change: How nuances of getting down to the individual project level on market.

Matt Birenbaum: Yeah, hey, Steve. I mean, every project updates their pro forma when it comes to our investment committee for construction start. And so, you know, at the beginning of the year, we think we know where those projects are in terms of costs, and in terms of NOI, and in terms of the spread there, relative to the capital we've sourced to fund it and relative to where assets would be trading in that market. So it is deal by deal. And, you know, as we sit here at this moment, that pipeline of the remaining starts for the year look to be as profitable as we had thought at the beginning of the year, or late last year or whenever we last marked those to market.

Steve CECO: Yeah, Hey, Steve.

Speaker Change: I mean every project updates their pro forma when it comes to our investment committee for a construction start and so at the beginning of the year. We think we know where those projects are in terms of cost and in terms of NOI and in terms of the spread there relative to the capital we have source.

Steve CECO: To fund it and relative to where assets would be trading in that market. So.

Steve CECO: It is deal by deal and you know and.

Steve CECO: As we sit here at this moment.

Steve CECO: That pipeline of the remaining starts for the year look to be as profitable as we had thought at the beginning of the year.

Or late last year or whenever we last mark those to market. So I.

Matt Birenbaum: So, you know, as things develop through the course of the year, the costs could change. Right now, we're seeing more good news than bad news on that front. Deals that we've bid recently, you know, we're actually seeing costs lower than where they were two or three quarters ago. So that's helping. So that's one big input. NOIs is another big input. Obviously, if rents either start to rise or fall more meaningfully, you know, that might change the projected yield on those deals. And then where the transaction market is. You know, if we see significant changes to the transaction market that would change the equation of how the value of those assets is relative to where you could buy an asset, you know, or the yields relative to the cap rates, which are kind of tracking in the same direction.

Steve CECO: Things as things developed through the course of the year the costs could change right now we're seeing more good news than bad news on that front deals that we've bid.

Steve CECO: Recently, we're actually seeing costs lower than where they were two or three quarters ago. So that's helping.

Steve CECO: So that's one big input NOI is another big input, obviously, if rents either start to rise or fall more meaningfully that might change the projected yield on those deals and then where the transaction market. As you know if if we see significant changes to the transaction market I think we change the equation of how the value of those asked.

Steve CECO: <unk> is relative to.

Steve CECO: Where you could buy an asset.

Steve CECO: Yields relative to the cap rates, which are kind of tracking in the same direction.

Matt Birenbaum: You know, those are that would be the other thing we'd be we look at very carefully.

That would be the other thing we'd be we look at very carefully.

Sean Breslin: Great thanks. And maybe for Sean, you know, just kind of looking at the stats on page 10 and, you know, listening to your comments, you know, I realize things so far have have, you know, played out kind of as expected, maybe a little bit better. Are you doing anything differently kind of as you think about the renewal process or trying to get ahead of things? Or, you know, is it pretty much business as usual until kind of there are darker clouds to the extent that they come or, you know, what proactive changes might you be making on the lease?

Speaker Change: Great. Thanks, and maybe for Sean you know just kind of looking at the stats on page 10, you know listening to your comments.

Speaker Change: You know I realize things so far have have played out kind of as expected maybe a little bit better.

Speaker Change: Are you doing anything differently kind of as you think about the renewal process or trying to get ahead of things or was it pretty much business as usual until kind of there are darker clouds to the extent that they come or what proactive changes might you be making on the leasing front.

Sean Breslin: Yes, Steve, good question. What I'd say to that is, it really depends on the region, and our view on the region. So, you know, to give you an example, let's take Los Angeles, which has had, you know, a weak employment environment, mainly due to the entertainment sector. You've seen some things there in the ports that are a little bit concerning as it relates to the tariff impact and stuff like that. So in a market like that, we probably would hedge slightly higher on occupancy and have more flexible renewal parameters for residents that are negotiating 30 days from now, 60 days from now, etc.

Speaker Change: Yes, good question.

Speaker Change: What I'd say to that is it really depends on the region and our view on the region. So to give you. An example, let's take Los Angeles, which.

Speaker Change: Yes.

Speaker Change: We can fly in that environment, mainly due to the entertainment sector.

Speaker Change: You're seeing some things there and the ports that are a little bit concern as it relates to the tariff impact and stuff like that so in a market like that we probably would had slightly higher on occupancy and have more flexible renewal parameters for residents that are negotiating 30 days from now 60 days from now et cetera regarding our commitment.

Sean Breslin: regarding a commitment that they're making to a new lease. So I wouldn't say there's a global strategy, there's a unique market and sub market strategy, depending on the circumstances of that environment. So that's how I would think about it in terms of how we position it. If you start to see very, very dark macroeconomic clouds, so to speak, you might alter a portfolio strategy overall. But I wouldn't say we're anywhere near that type of position where you're looking at something that's significant.

Speaker Change: Breaking into a new lease.

Speaker Change: So I wouldn't say there was a global strategy is there is a unique market and sub market strategy, depending on the circumstances of that environment.

Speaker Change: So that's how I would think about in terms of how we position that as you. If you start to see a very very dark macroeconomic cloud so to speak you might alter portfolio strategy overall, but I wouldn't say, we're anywhere near that type of position, where you're looking at something thats significant.

Unknown Executive: Great, thank you. Thank you.

Speaker Change: Great. Thank you.

Speaker Change: Yes.

Speaker Change: Thank you.

Janna Galan: And our next question comes from Janna Galan with the Bank of America. Hi, good afternoon. Thank you for taking my question.

Speaker Change: Our next question comes from John I'll go on with the Bank of America. Please proceed.

Speaker Change: Hi, Good afternoon. Thank you for taking my question.

Kevin O'shea: This is likely for Matt. On the development pipeline, I appreciate you highlighting 2025 as kind of a lighter delivery year with three completions that are kind of more back-end weighted and walking us through the home counts. But could you kind of tie this into what type of FFO headwind this is in 2025 versus 2024 and how it will be a tailwind in 2026?

Speaker Change: Likely.

Speaker Change: Quickly for Matt on the development pipeline I. Appreciate you highlighting our 2025 kind of a lighter delivery year with re completions that are kind of more backend weighted and walking us through the home counts, but could you kind of tie this into what type of episodes headwind. This is and twenty-five versus 'twenty four and how it will be a tailwind in <unk>.

Speaker Change: 26.

Kevin O'shea: Yeah, this is Kevin. I want to make sure we kind of understand you want to understand how, given the cadence of deliver of occupancies out of our development book, this year versus last year versus next year, how that plays through from an earnings growth headwind? Exactly. Okay, so yeah, and back on slide 11 here, that's where we have the data for that. So as you look at 25 versus 24, obviously you have 2,300 homes being occupied this year on a projected basis versus 2,600 homes last year. So last year, if I recall correctly, we probably had maybe $45 million or so of development NOI, maybe low $40 million range, $10 to $15 million more than we guided to in February of this year, where we guided to $30 million of NOI.

Kevin O'shea: Yes. This is Kevin.

Want to make sure Im kind of understand you understand how given the cadence of deliver a full occupancies out of our development book This year versus last year versus next year, how that plays through from a earnings growth headwind.

Kevin O'shea: Exactly.

Kevin O'shea: Okay. So, yes and back on slide 11 here, that's where we have the data for that so as you look at 25 versus <unk> 44, obviously, you have 4300 homes being occupied this year on a projected basis versus 2600 homes last year, So last year.

Speaker Change: If I recall correctly, we probably had.

Kevin O'shea: $45 million or so of development NOI.

Kevin O'shea: Maybe high <unk> low $40 million range $10 million to $15 million more than we guided to in February of this year, where we guided to $30 million of NOI.

Kevin O'shea: So certainly there's a lot that happens on a rolling two-year basis that informs the development NOI number, but this is the easiest snapshot to look at, which is occupancies in a calendar year period, and there are 300 homes lower this year than last. So that's a driver towards less development NOI in 25 versus 24. We also, if you're looking more broadly, at the delta between our overall core FFO growth rate, which, you know, this year is healthy, given what we have forecast for the year of three and a half percent. The other headwind we have relative to 24 was we had higher levels of interest income on cash last year versus this year.

Kevin O'shea: So certainly there is a lot that happens on a rolling two year basis that informs the development NOI number but this is easily snapshot to look at which is occupancy hit a calendar year period and a 300 holds lower this year than last so that's a driver towards less development NOI and <unk> 25 versus 20.

Kevin O'shea: For us a little bit of a headwind there. We also if youre looking more broadly at the delta between our overall core.

Kevin O'shea: The growth rate, which this year.

Kevin O'shea: Is healthy.

Kevin O'shea: Given what we have forecast for the year.

Kevin O'shea: Three 5%.

Kevin O'shea: The other headwind we have relevant 24 was we had higher levels of interest income on cash last year versus this year. So those are the two biggest pieces. If you look at sort of core growth relative to external growth platforms.

Kevin O'shea: So those are the two biggest pieces if you look at sort of core of the growth relative to external growth platforms, referencing a base of what we get off the internal growth platform this year. So those are two pieces that I would call out for you, sort of lower occupancy in 25 and lower cash income. This actually came up in the last call where I was asked to quantify how many cents of earnings growth we anticipated this year off of external growth. And if I recall correctly, the estimate was 14 cents, which equated to about 130 basis points of estimated external growth in 25 versus 24.

Kevin O'shea: Im.

Kevin O'shea: Referencing a based on what we get out the internal growth platform. This year. So.

Kevin O'shea: Those are two pieces that I would call out for you sort of lower occupancies in 'twenty, five and lower cash income. This actually came up in the last call where.

Kevin O'shea: I was asked to quantify how many cents of earnings growth, we anticipated this year off of external growth.

Kevin O'shea: And if I recall correctly, the estimate was <unk> 14.

Kevin O'shea: Yes.

Kevin O'shea: Weighted to about 130 basis points of estimated external growth of 25.

Kevin O'shea: <unk> versus 'twenty, four and again that was somewhat muted by lower Occupancies are lower cash income as you look into 'twenty six there is more of a tailwind. So it is a good news story, there all else equal because we see ourselves going from 'twenty 300, Occupancies in 25 to 28 homes next year or so.

Kevin O'shea: And again, that was somewhat muted by lower occupancies and lower cash. As you look into 26, you know, there's more of a tailwind. So it's a good news story there, all else equal, because we see ourselves going from 2,300 occupancies in 25 to 28 homes next year. So one can anticipate a higher level of development NOI in 2026 versus this year, where, again, in our initial outlook, we only had $30 million of development NOI forecast.

Kevin O'shea: One can anticipate a higher level of development NOI in 2026 versus this year, where again our initial outlook, we only had $30 million of development NOI forecasted in 2025.

Sean Breslin: Thanks, Kevin. And then, you know, it's great to hear the D.C. is still maintaining its kind of strong momentum. I guess, you know, you being headquartered in Greater D.C., you probably have a better perspective on whether we're all kind of overreacting to news headlines. But just curious if you could kind of comment to, you know, what you're seeing, the mood on the ground, the job growth post the Doge changes. And we're hearing from the office companies that there is a lot of good demand from defense companies and growth in northern Virginia.

Kevin O'shea: Thanks, Kevin and then.

Kevin O'shea: It's great to hear the DC still maintaining its strong momentum I guess, you know you being headquartered in greater D. C. You probably have a better perspective.

Kevin O'shea: And whether we're all kind of overreacting to news headlines, but just curious if you could kind of comment too.

Kevin O'shea: What you're seeing on the ground the job growth post the dose changes and we're hearing from the office companies that.

Kevin O'shea: There is a lot of good demand from defense.

Kevin O'shea: <unk> and growth in Northern Virginia.

Sean Breslin: Yeah, John, this is Sean. I'm happy to comment and others can as well. What I would say is, generally speaking, there's a fair amount of chatter about it across the region. We certainly hear about it from prospects and residents in terms of, you know, just some uncertainty about, you know, I got a job today, you know, hopefully I have a job tomorrow, kind of thing. You know, there's nothing in the data yet to say that it's impacting behavior materially. You know, we'll see how the economic data unfolds here over the next several months, including job growth.

Yes, Jana this is Sean I'm happy to comment on this cat as well what I'd say is generally speaking, there's a fair amount of chatter.

Kevin O'shea: Across the region.

Speaker Change: I heard about it from prospects and residents.

Kevin O'shea: In terms of just some uncertainty about.

I've got a job today, hopefully I have a job tomorrow kind of thing.

Kevin O'shea: There's nothing in the data yet to say that it's impacting behavior materially we will see how the economic data unfolds here over the next several months, including job growth, but I'd say, it's primarily discussion points right now.

Sean Breslin: But I'd say it's primarily discussion points right now in terms of, you know, what we're hearing on the ground at our communities and what I'd say, you know, just hearing in the general community in terms of what's happening in restaurants and various other things. That's really what you're hearing for the most part.

Kevin O'shea: In terms of what we're hearing on the ground at our communities and what I would say just hearing in the general community in terms of what's happening in restaurants and various other things.

Kevin O'shea: That's really what you got for the most part.

Unknown Executive: Thank you.

Kevin O'shea: Thank you.

Kevin O'shea: Yes.

Speaker Change: Thank you and our next question comes from Austin, <unk> with Keybanc capital markets. Please proceed with your question.

Austin Wurschmidt: And our next question comes from Austin Wurschmidt with KeyBank Capital Markets. Please proceed with your call. And what I mentioned earlier in response to a question is, last year, occupancy strengthened much earlier than we anticipated in late January, February. So we were able to hit the gas a little harder on rate at that point in time. And so when you look at the year-over-year change in rate, there's just not as much to gain there at this point in time as compared to what we see as we move further through the second quarter into the back half of the year.

Great Thanks, and good afternoon.

Speaker Change: I wanted to hit specifically on the renewal rate growth, which is really moderated and lower than it's been in some time in the first quarter.

Speaker Change: Recognizing there was some pick up in April, but what do you attribute to that moderating renewal rate growth and what's really holding you back from achieving higher increase.

Speaker Change: And I guess, whether you think you're near a low point any absent any macro related headwinds.

Sean Breslin: Yes, it is Sean.

Sean Breslin: But the first thing I would say is as I mentioned earlier things are basically tracking where we expected them to be in terms of overall blended rent change.

Sean Breslin: As it relates to renewals, specifically and even on the move in side, what we communicated on the previous call. When we provided our outlook is that we did expect rent change to be stronger in the second half of the year as compared to the first half of the year as a function of the year over year comps.

Sean Breslin: What I had mentioned earlier in response to a question as last year.

Sean Breslin: Occupancies strengthen much earlier than we anticipated.

Sean Breslin: In late January February so we were able to hit the gas a little harder on rate at that point in time and so when you look at the year over year change in rate, there's just not as much to gain there at this point in time as compared to what we see as we move further through the second quarter into the back half of the year. So I would think of it.

Sean Breslin: So I would think of it that way in terms of the quarterly cadence of it, and this being the point at which we see the weakest point of renewal rent growth, and we do see that lifting up as we move through the year.

Sean Breslin: That way in terms of the quarterly cadence of it.

Sean Breslin: And this being the point at which we see the weakest flight of renewal rent growth and we do see that lifting up as you go through the year.

Sean Breslin: Helpful. And then just wanted to hit on on the investment side.

Sean Breslin: I guess it was December sunbelt portfolio transaction, you announced earlier this year kind of a unique opportunity given submarket location product type and just scale.

Sean Breslin: But are you seeing other opportunities to make more meaningful headway into those expansion reasons.

Sean Breslin: And just the opportunity set given.

Sean Breslin: The supply backdrop that you've discussed in the call.

Matt Birenbaum: Hey Austin, it's Matt. I'd say it was unique in the sense that the opportunity to buy eight assets from the same seller, they all kind of fit into our buy box. We are looking for something rather specific. These are all relatively simple walk-up garden assets in suburban submarkets in our target geographies, and that doesn't happen all that often. So mostly what we've done until this point has been buying one-offs, and that's still the base case assumption. So to the extent other opportunities present themselves that have a similar confluence of factors, we'll certainly be interested in it.

Sean Breslin: Yeah, Hey, Austin, it's Matt.

Speaker Change: I'd say it was unique in the sense that the opportunity to buy eight.

Sean Breslin: Eight assets from the same seller.

Sean Breslin: All kind of fit into our buy box, where we are looking for something rather specific yes. These are all our relatives.

Sean Breslin: Relatively simple walk up garden assets in suburban Submarkets in our target geographies and that doesn't happen all that often so mostly what we've done until this point has been buying kind of one offs and that's still kind of the base case assumption so to the extent other opportunities present themselves.

Sean Breslin: They have a similar confluence of factors will certainly be interested in it I think I talked about a little bit on our last call even as well.

Matt Birenbaum: I think I talked about it a little bit on the last call even as well, but frequently when larger portfolios come to market, they're in more broad spread geographies than what we're looking for. It includes a mix of different types of assets, including assets that we would have to lay off and take some risk with that. So this was a little bit of a unique situation. Now, I would also say just within the context, it's just a continuation of what we've been doing in terms of portfolio trading, selling assets from our established regions, redeploying that capital to the expansion regions.

Sean Breslin: But frequently when larger portfolios come to market there.

Sean Breslin: More broad spread geographies and what we're looking for or it includes a mix of different types of assets, including assets that we would have to lay off and take some risk with that so.

Sean Breslin: So this was a little bit of a unique situation now I would also say just within the context, it's not it's just a continuation of what we've been doing in terms of ports.

Sean Breslin: Portfolio trading selling assets from our established regions redeploying that capital to the expansion regions, we've been chipping away at it for years really it just so happens this was an opportunity to do.

Matt Birenbaum: You know, we've been chipping away at it for years, really, it just so happens this was an opportunity to do eight assets at one time. The other element I'd add, Austin, is it does feel like to us a more opportune time to execute on that trade. You think about where rents in these markets have traveled over the last three years. You look at the basis at which we can enter these markets and the Texas transaction being a good example of that at $230,000 a door. And we're thinking about long-term both earnings and value creation. We can find opportunities to lean in more on the margin we're looking to.

Sean Breslin: Eight assets at one time.

Sean Breslin: Element I'd add Austin as it does feel like a more opportune an opportune time to execute on that trade. If you think about where rents in these markets have traveled over the last three years, you'll look at the basis at which we can enter these markets.

Sean Breslin: Texas transaction being a good example of that at $230000 a door and we're thinking about long term both earnings and value creation.

Sean Breslin: Can find opportunities to lean in more on the margin we're looking to.

Sean Breslin: Great. Thank you.

Jamie Feldman: And our next question comes from Jamie Feldman with Wells Fargo.

Jamie Feldman: And our next question comes from Jamie Feldman with Wells Fargo. Please proceed.

Cooper Clark: Hi, this is Cooper Clark on for Jamie. Thanks for taking the question. I wanted to ask if you're still seeing outperformance in your suburban assets versus urban across all of your markets year to date? And does the potential for a stronger urban recovery on the West Coast and Sunbelt have any effect on your target allocations moving forward?

Speaker Change: Hi, This is Cooper Clark on for Jamie. Thanks for taking the question I wanted to ask if you're still seeing outperformance in your suburban assets versus urban across all of your markets year to date and does the potential for stronger urban recovery on the West coast and Sunbelt have any effect on your target allocations moving forward.

Sean Breslin: Yeah, Cooper, this is Sean. If I take the first one, and Matt or Ben can talk about the allocation topic. It depends on what metric you're looking at in terms of outperformance. In terms of revenue growth year over year, the suburban portfolio is outperforming. If you're looking at sort of near term rent change, that's a little bit more of a push right now, I'd say in part due to recent trends in San Francisco getting stronger, and some general improvement and a couple of other urban areas, you know, Seattle is an example. It's not that urban Seattle is great.

Yeah. This is Sean if I take the first one in matter of van can talk about the allocation topic.

Speaker Change: Topic.

Speaker Change: It depends on what metrics Youre looking at in terms of our performance in terms of revenue growth year over year.

Speaker Change: Our suburban portfolio is outperforming if you will.

Speaker Change: Looking at sort of near term brand change, that's a little bit more of a push right now I'd say in part due to recent trends in San Francisco getting stronger and some general improvement in a couple of other urban areas Seattle as an example, it's not the urban Seattle is great, but on a year over year.

Sean Breslin: But on a year over year basis, when you start looking at asking rents, and then rent change is starting to get better. So depending on which metric you're looking at, you get a different answer there. One's kind of a push, as I said, the other is still tilting suburb.

Speaker Change: <unk> when you start looking at asking rents and then rent change is starting to get better.

Speaker Change: Depending on which metric you're looking at and you get a different answer there once kind of a.

Speaker Change: Push as I said, the other is still tilted suburban.

Matt Birenbaum: I just add on to that, as it relates to, you know, the overall portfolio strategy and the expansion region. It's still, across our geography, both expansion and established regions, 25 and even 26, there's still more supply as a percentage of stock, urban than suburban. That surprised me a little bit because you would have thought that the urban supply spigot would have been shut off a couple years ago. Those deals take longer to build, they're easier to entitle, sometimes there's other things driving it like opportunity zones. So I would say the longer term supply dynamics still favor the suburbs, at least in the expansion regions we've selected.

Speaker Change: Yes.

Speaker Change: Add on to that as it relates to the overall port folio strategy and the expansion regions.

It's still in our across our geography, both expansion and established regions 25, and even 26, there is still more supply as a percentage of stock urban and suburban that surprised me a little bit because you would have thought that the urban supply.

Speaker Change: It would've been shut off a couple of years ago, those deals take longer to build they're easier to entitle, sometimes theres other things driving it like opportunity zones. So.

Speaker Change: I would say the longer term supply dynamics still favor the suburbs at least in the expansion regions. We selected I can't speak to the sunbelt writ large but.

Matt Birenbaum: I can't speak to the Sunbelt writ large. So when you combine that with the demographic factors in terms of aging of the population where people want to live and the regulatory overlay, which is more constraining in the urban jurisdictions, all that would say, yeah, I mean, we're absolutely still believers. We're much more comfortable betting over the next 10 years on suburban Denver versus city of Denver, on suburban Charlotte versus in the middle of the city. You think about Miami versus South Florida writ large, we do tend to continue to favor the suburbs in all of those regions.

Speaker Change: So when you combine that with the demographic factors in terms of aging of the population where people want to live and the regulatory overlay, which is more constraining in the urban jurisdictions, all that would say, yes, I mean, we're absolutely still believers we're much more comfortable batting over the next 10 years.

Speaker Change: Suburban Denver versus city of Denver on suburban Charlotte versus.

Speaker Change: In the middle of a city.

You think about Miami versus South, Florida writ large we do tend to.

Speaker Change: To favor the suburbs and all of those regions.

Unknown Executive: Thank you.

Speaker Change: Thank you and then switching over to turnover just wondering how much of the lower turnover is driven solely by lower tenant move outs to buy homes versus other factors and maybe benefits from the horizon rollout I guess tenant move outs to buy homes returned to pre pandemic levels, but we still have turnover at historical lows.

Cooper Clark: And then switching over to turnover, just wondering how much of the lower turnover is driven solely by lower tenant move outs to buy homes versus other factors and maybe benefits from the horizon rollout? tenant move-outs to buy homes returned to pre-pandemic levels, but we still have turnover at historic.

Sean Breslin: Yeah, Cooper, good question. What I would tell you is that the, you know, for the last several quarters now, we've seen, you know, sort of, you know, move outs to buy, if you want to describe it that way, are relatively low levels, yet, you know, kind of 8 to 9% range. But the overall level of turnover has continued to come down. So I would think of it as the move out piece on the on the home side being relatively stable.

Speaker Change: Yes, good question.

Speaker Change: What I would tell you is the.

Speaker Change: For the last several quarters now we've seen sort of move outs to buy if you wanted to describe it that way at relatively low levels yet.

Speaker Change: Kind of an 8% to 9% range.

Speaker Change: But overall level of turnover has continued to come down so I would think of it as.

Speaker Change: They move out piece on the home side being relatively stable there are other factors.

Sean Breslin: There are other factors that are driving people's desire to stay longer with us beyond So certainly to the extent that you saw an increase. and people moving out versus at home would have an impact, yes. But you've got all of the other factors kind of moving south, so to speak. So you'd have to sort of see some movement in all of those different reasons for people to move out to start to see a trend up in a meaningful way, well beyond move out to buy a home. And even when you look at move out to buy a home, if you refer back to what Ben described earlier, that is increasingly an unaffordable substitute in our established regions.

Speaker Change: Driving people's desire to stay longer with us beyond that so certainly to the extent that you saw an increase.

Speaker Change: And people moving out versus at home would have an impact yes, but you've got all of the other factors kind of yes, Bob itself so to speak.

Speaker Change: So you'd have to sort of see some movement in all of those different reasons for people to move out to start to see a trend up a meaningful way.

Speaker Change: Well beyond about.

Speaker Change: Goodbye.

Speaker Change: When you look at move out to buy a home if you refer back to what Ben described earlier.

Speaker Change: It is increasingly in an affordable subsea.

Speaker Change: Substitute in our established regions and even now where we're seeing numbers from homebuilders in the resale market, where there is some softening most of the markets that you're hearing about.

Sean Breslin: And even now where we're seeing numbers from homebuilders and in the resale market where there's some softening, most of the markets that you're hearing about where that's occurring tend to be in the Sunbelt, where there's some excess inventory either from homebuilders or the resale inventories building up, you're starting to see some softening in pricing. In the established regions, that spread is so wide, you'd have to see a significant erosion in both housing values and then declines in interest rates to make those homes much more affordable than they are today relative to renting. Okay. Thank you.

Speaker Change: Whether that's occurring tend to be in the sunbelt, where there is some excess inventory either from homebuilders are the resale inventory is building up you're starting to see some softening in pricing.

Speaker Change: And the established regions that spread is so wide you'd have to see a significant erosion.

Speaker Change: <unk>.

Speaker Change: Housing values.

Speaker Change: And then declines in interest rates make those homes much more affordable than they are today relative to renting.

Speaker Change: Okay. Thank you.

Speaker Change: Okay.

Speaker Change: Thank you.

Adam Kramer: And our next question comes from Adam Kramer with Morgan Stanley. Hey guys, thanks for the time here. I think last quarter you kind of framed the job growth outlook for the year as moderating but healthy. I was wondering, you know, as you kind of sit here today, obviously a lot has changed, it's just been a few months, but a lot has changed in the macro. I was wondering what you guys are kind of... forecasting or what the third party forecast you guys use and kind of base your your guidance and thoughts around how that's changed if it has at all in terms of the job growth outlook for the year.

Speaker Change: The next question comes from Adam Kramer with Morgan Stanley. Please proceed with your question.

Adam Kramer: Hey, guys. Thanks for the time here.

Speaker Change: Last quarter, you kind of frame the job growth outlook for the year is moderating but healthy.

I'm wondering as you kind of sit here today, obviously, a lot has changed its just been a few months but.

Speaker Change: A lot of change in the macro I'm wondering what you guys are kind of.

Speaker Change: Forecasting or what the third party forecast that you guys use your kind of base your guidance and thoughts around how that's changed if it has at all in terms of the job growth outlook for the year.

Ben Schall: Yeah, Adam, it's Ben, I'll take that. So going into the year, we look to the look to NABE, the National Association of Business Economists, look to their consensus in terms of projected job growth. And to your point, you know, it was moderate moderating expectations relative to 2020, or, you know, to the tune of a million for net new jobs. Given the last couple of months, and given uncertainty, and given some of the policy impacts on growth, that consensus estimate has come down, you know, more to the tune of kind of a million net new jobs.

Speaker Change: Yeah, Adam it's Ben I'll take that.

Ben: And so going into the year, we look to look to name the National Association of business economists.

Ben: It looked at their consensus in terms of projected job growth and to your point, yes, there was moderate moderating expectations relative to 2024 to the tune of $1 million for net new jobs.

Ben: Given the last couple of months.

Ben: Given uncertainty and given some of the policy impacts on growth that consensus estimate has come down more to the tune of kind of 1 million net new jobs. So still net positive, but definitely some more of a sort of concerning horizons out there that we're closely monitoring.

Ben Schall: So still net positive, but definitely some more sort of concerning horizons out there that we're closely monitoring.

Unknown Executive: Okay, great.

Ben: Okay, Great and then just switching gears wondering in terms of kind of the renewals for for May and June wondering if youre able to.

Sean Breslin: And then just switching gears, wondering in terms of kind of the renewals for May and June, wondering if you're able to I just wanted to kind of provide a disclosure just to what you're going on with renewals for these couple months and just kind of the general rule of thumb as to what that might actually result in in terms of time. Yeah, it's Sean. In terms of those renewal offers, they're in the low to mid 5% range. And then, you know, we typically, depending on the environment, you know, see anywhere from, you know, 100 to 150 basis points of spread between where they go out and where they settle.

Ben: Kind of provide disclosure just what youre going out with renewals for for these couple of months.

Ben: And just kind of a general rule of thumb is too.

Ben: What that might actually result in terms of signed renewals.

Ben: Yes, Sean in terms of those renewal offers are in the low to mid 5% range.

Speaker Change: And then we typically depending on the environment I see anywhere from 100 to 150 basis points of spread.

Ben: Between where they go out and where they settle.

Unknown Executive: So that gives you some sense of the general range. Great, thank you.

Speaker Change: So that gives you some sense of the general range.

Ben: Great. Thank you.

Yep.

Speaker Change: Yeah.

Speaker Change: Thank you.

Richard Hightower: And our next question comes from Richard Hightower with BART. Hey, good afternoon, everybody. I just want to go back to the Texas portfolio deal really quickly. So I think, you know, market reaction to the initial yield, or even the stabilized yield was maybe not so positive. But if I think about the math on Avalon's source of funds, you know, you issued OP units at 225, which kind of at the midpoint of FFO guidance is around a 5% implied equity yield. And even even lower than that, if we think about AFSO. So that's attractive, you know, your cost of debts inside of that, you did use some cash to fund part of the Dallas portfolio.

Our next question comes from Rich Hightower with Barclays. Please proceed with your question.

Rich Hightower: Hey, good afternoon everybody.

Rich Hightower: I just wanted to go back to the Texas portfolio deal really quickly so I think.

Rich Hightower: Market reaction to the initial yield or even the stabilized yield was maybe not so positive but.

I think about the math on Avalon source of funds.

Rich Hightower: Issued op units, the $2 25, which kind of at the midpoint of <unk> guidance is around a 5% implied equity yield and even even lower than that if we think about that as well.

Rich Hightower: So that's attractive you know your cost of debt inside of that you did.

Rich Hightower: Use some cash to fund.

Matt Birenbaum: So just help us understand how we should think about sort of cost of capital source of funds, how you thought about it relative to that pricing. And then, you know, these units are 11 years old, on average, is there capex on the way that would sort of skew that calculation? Just help me think through the math, if you don't I think, Richard, you're headed in the right direction there.

Rich Hightower: Part of the Dallas portfolio. So just help us understand how we should think about sort of cost of capital source of funds, how you thought about it relative to that pricing.

Rich Hightower: And then <unk>.

Rich Hightower: Units or 11 years old on average.

Rich Hightower: Capex on the way that would sort of see that calculation just help me think through the math if you don't mind.

Rich Hightower: I think I think Richard you are headed in the right direction, there maybe make a couple of clarifications. So.

Matt Birenbaum: Maybe I'll make a couple of clarifications. So you split it into two transactions just in terms of how we funded it. The Austin deals were funded through 1031 exchanges, so very consistent with how we've been executing on our trading activity over the last number of years. The Dallas transaction was funded through a combination of their down rate units for us versus operating partnership units. But the math that you're indicating is consistent with our math, which is an initial cost of capital at 225 and then around 5%. And so when you line that up relative to our initial stabilized yield on this transaction at 5.1, kind of right in that type of range.

Rich Hightower: You split it into two transactions just in terms of how we funded at the Austin deals were funded through 10 31 exchanges. So very consistent with how we've been executing on our trading activity over the last number of years.

Rich Hightower: The Dallas transaction was funded through a combination of their downright units for us.

Rich Hightower: Versus operating partnership units, but the math that you're indicating is consistent with our math, which has an initial cost of capital of $2 25 and in around 5% and so when you line that up relative to our initial stabilized yield on this transaction at five one kind of right in right in that type of range.

Matt Birenbaum: And if we find opportunities where that initial yield relative to our cost of capital is relatively on square with itself, but we can advance our portfolio allocation objectives, we'll do that. Then there's the added elements of the benefits of scale. And there's a micro dynamic as it related to this portfolio. Not only was the, these were the sub markets and the product type that we wanted, but there was also very heavy geographic overlap, close proximity to our existing assets in the market. So the acquisitions benefited from that, but also our existing assets in those markets benefit from that additional density as you think about our increased neighborhooding.

Rich Hightower: And if we find opportunities where that initial yield relative to our cost of capital is relatively on square with with itself, but we can advance our portfolio allocation objectives. We will do that then.

Rich Hightower: And then there is the added elements of the benefits of scale.

Rich Hightower: And there is a micro dynamic as it related to this portfolio not only was the these.

These were the submarkets in the product type that we wanted but there was also very heavy geographic overlap close proximity to our existing assets in the market. So the acquisitions benefited from that but also our existing assets in those markets benefit from that additional density as you think about our increased neighborhoods.

Matt Birenbaum: And then a little bit more broadly, we are now at the point, and this is the type of step function type of opportunity, not huge, but step function type of opportunity where we can get a more fulsome team on the ground. Our operating scale is closer to what you would think about as a full region. And so for our next acquisition, either an individual asset or a portfolio, we can then bring those assets on at an even lower marginal type of cost.

Rich Hightower: And then a little bit more broadly.

Rich Hightower: Now at the point. This is the type of step function type of opportunity not huge but step function type of opportunity, where we can get.

Rich Hightower: More fulsome team on the ground are operating scale is closer to what you would think about it as a full region and so for our next acquisition either an individual asset or a portfolio. We can then bring those assets on at an even lower marginal type of cost.

Matt Birenbaum: Okay, that's actually very helpful. And then, is there any sort of, you know, CapEx on the come given the age of these assets? Yeah, so we did underwrite some upfront CapEx, like we do on most acquisitions, that should cover, you know, that. And what I would say is the way to think about it in general, the assets on average are 11 years old. So that is younger than our existing portfolio. I think the average age is 18 or 19 years old. So kind of on a dollars-per-door basis, the CapEx on a go-forward basis, you know, we would not expect to be higher than our portfolio as an average.

Speaker Change: Okay. That's actually very helpful. And then is there any sort of capex on the com given the age of these assets.

Rich Hightower: Yeah.

Rich Hightower: Yes.

Rich Hightower: So we did underwrite some upfront capex like we do on most acquisitions that should cover that and what I would say is the way to think about it in general the assets on average of 11 years old. So that is younger than our existing portfolio. I think the average age is 18 or 19 years old.

Rich Hightower: Kind of on a dollars per door basis, the capex on a go forward basis.

Rich Hightower: We would not expect to be higher than our portfolio as an average in fact, it might be a little bit less.

Matt Birenbaum: In fact, it might be a little bit less because these are simple garden assets. There's no parking decks. There's no enclosed corridors. Okay, but that that would not be included in either the yield or that 230,000 a door calculation, just to be clear, right? The 230 at door does not include the upfront CapEx, the 5-1 yield does include, that's a stabilized yield, so that's with our operations, and that is with the initial CapEx we plan to put into it, into the denominator. Got it.

Rich Hightower: Because these are simple garden assets Theres no parking tax there is no enclosed corridor is that kind of thing.

Speaker Change: Okay, but that that would that be included in either the yield or that 230000, a door calculation just to be clear right.

Speaker Change: The $2 30, a door does not include the upfront capex to five one yield does include that the stabilized yields so that's with our operations.

Speaker Change: And that is with the initial capex, we plan to put into it into the denominator.

Speaker Change: Got it alright. Thank you guys appreciate it.

Unknown Executive: All right. Thank you, guys. Appreciate it. Thank you.

Speaker Change: Yeah.

Speaker Change: Thank you.

Michael Goldsmith: And our next question comes from Michael Goldsmith with UBS. Good afternoon. Thanks a lot for taking my question. During your prepared remarks, you called out particularly strong market. So can you talk a little bit about what's what's driving?

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

Yeah.

Michael Goldsmith: Good afternoon. Thanks, a lot for taking my question. During your prepared remarks, you called out Northern California is a particularly strong market. So can you talk a little bit about what's what's driving that.

Speaker Change: Good luck going forward.

Sean Breslin: Yeah, Michael, it's Sean. I mean, I think there's a couple of things, but particularly for the city of San Francisco and the various submarkets within it, I think it's a combination of really three things, four things, actually. One, return to office mandates that have accelerated in part due to an improvement in the quality of life on the ground in terms of some of the concerns that persisted over the last couple of years, getting modestly better kind of month by month. That is a 20, 30 year low. So you get a combination of all those factors, all of them influencing sort of current performance and to the extent they're durable from a demand standpoint.

Sean Breslin: Yes, Michael its Sean.

I mean, I think there's a couple of things.

Sean Breslin: Particularly for the city of San Francisco and the various Submarkets, but then I think it's a combination of really three things for things actually one rich.

Sean Breslin: Turned office mandates that have accelerated.

Sean Breslin: In part due to.

Sean Breslin: An improvement in the quality of life.

Sean Breslin: On the ground in terms of some of the concerns have persisted over the last couple of years getting modestly better kind of month by month.

Sean Breslin: Based on what we're seeing and what we're hearing from our teams prospects and others. So kudos to the mayor and others for the efforts, they're putting forth there.

We are hearing about pickup in job growth.

Office leasing that's getting better.

Sean Breslin: So that's helpful. In terms of people wanting to bring jobs into the city AI is certainly a big part of that and then supply continues to dwindle to very negligible levels I think we're talking about.

Sean Breslin: You get into 2026 as an example to give you a sense of where things.

Sean Breslin: I'm talking about like 700 units being delivered across the entire San Francisco MSA that is.

Sean Breslin: 2030 year low so yes, you've got a combination of all those factors all of them influencing sort of current performance and to the extent that our durable from a demand standpoint.

Unknown Executive: Those drivers, the supply side will be negligible for the foreseeable future. Got it.

Sean Breslin: Yes.

Sean Breslin: Those drivers the supply side will be negligible for the foreseeable future.

Sean Breslin: Got it.

Unknown Executive: And as my follow up, I don't know if you said it discreetly, but you may have provided some of the numbers that go into it. But with sounds like renewals for the second quarter in the high fours to low fives based on based on where they settle in. But you know, what are you expecting in terms of your second quarter blended? Yeah, we didn't provide that specific guidance. But I did mention that renewal offers were going out in the low to mid 5% rate. Okay, thank you very much. Thank you.

Sean Breslin: My follow up.

Sean Breslin: Don't know if you said it discretely, but maybe provide some of that.

Sean Breslin: The numbers that go into it.

Sean Breslin: It sounds like renewals in the second quarter in the high fours.

Sean Breslin: Little size based on.

Sean Breslin: Based on where they settle in but.

Sean Breslin: What are you expecting in terms of your second quarter blended.

Sean Breslin: Great. Thanks.

Sean Breslin: Yeah, we didn't provide the specific guidance.

Sean Breslin: But I did mention that renewal offers.

Sean Breslin: Going out in the low to mid 5% range.

Sean Breslin: Okay. Thank you very much.

Sean Breslin: Sure.

Sean Breslin: Yes.

Sean Breslin: Thank you.

Alexander Goldfarb: And our next question comes from Alexander Goldfarb with Piper. Hey, good afternoon. And thank you for taking my question. I don't think it was asked, but I mean, a lot a lot's been covered the the seasonal OPEX increase in the second quarter. Can you just walk through that? I always think about like leasing costs more hitting in, you know, sort of third quarter when the units actually, you know, when more of the units have have fully turned, but maybe this is just leasing costs or what else is driving the seasonal impact in the second quarter.

Sean Breslin: Next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Alexander Goldfarb: Hey, good afternoon, and thank you for taking my question.

Alexander Goldfarb: I don't think it was asked but I mean, a lot lots been covered.

Alexander Goldfarb: The seasonal opex increase in the second quarter can you just walk through that I always think about like leasing cost more hitting in sort.

Alexander Goldfarb: Third quarter when the units actually.

When more of the units have fully turned but maybe this is just leasing costs or what else is driving the seasonal impact in the second quarter.

Sean Breslin: Yeah, Alex and Sean, I'm happy to take that one. So sequentially from Q1 to Q2, there's kind of three or four main drivers. Most are normal, but there are a couple unusual ones. The unusual one is, as noted, we had some benefit in terms of lower OPEX in Q1 of this year, related to property taxes, some appeals and some assessments that came in lower than anticipated. So about a third of the increase is related to the benefit we sort of realized in the first quarter, bringing the base down, if you want to think about it that way.

Sean Breslin: Yeah, Alex This is Sean I'm happy to take that one so sequentially from Q1 to Q2.

Sean Breslin: Three or four main drivers most are normal but there are a couple of unusual ones.

Sean Breslin: The unusual one is as noted we had some benefit in terms of lower Opex in Q1 of this year related to property taxes, Some appeals and assessments.

Sean Breslin: Assessments that came in lower than anticipated so about a third of the increase is related to the benefit realized in the first quarter, bringing the based on if you want to think about it that way. So if you look at the absolute increase from quarter to quarter about a third relates to just that piece of it and then as you pointed out our turn costs in terms of you have higher explorations in Q.

Sean Breslin: So if you look at the absolute increase from quarter to quarter, about a third relates to just that piece of it. And then as you pointed out, turn costs in terms of you have higher expirations in Q2, you tend to see more turnover in Q2. Also, seasonally, we start to increase what we call non-routine or maintenance projects in the spring season. It's kind of spring through the summer, but you want to get started in the spring to have the benefit of those projects being completed for summer leasing season. So you've got a number of things like that.

Sean Breslin: Two you tend to see more turnover in Q2.

Sean Breslin: Also seasonally we start to increase.

Sean Breslin: We call it non routine or maintenance projects in the spring season. This spring.

Sean Breslin: Through the summer, but you want to get started in the spring has the benefit of those projects being completed for summer leasing season, Yes, you've got a number of things like increased marketing various other categories. So a lot of that is normal seasonal trends.

Sean Breslin: You can increase marketing, various other categories. So a lot of that is normal seasonal trends. I'd say the one unusual thing is, again, about a third of it relates to what happened in the first quarter with some benefit in areas that were not anticipated.

Sean Breslin: The unusual thing is again about a third of it relates to what happened in the first quarter with some benefit in areas that were not anticipated.

Sean Breslin: Okay, and then the second question is, in the opening comments, you guys talked about, you know, some that you were hearing some resident concerns, but you weren't seeing anything of the fundamentals, you know, leasing was still strong. Then there was a direct question on DC where you mentioned resident concerns. But I want to go back to the just the general in the opening statement. Can you just talk about that? Because you're like the only apartment read that so far has really talked about resident concerns. So just curious, in your experience, you know, do resident concerns, is that usually a good indicator for you guys that bad stuff's about to happen?

Speaker Change: Okay and then the second question is in the opening comments you guys talked about.

Sean Breslin: That you were hearing some resident concerns.

Sean Breslin: But you Werent seeing anything of the fundamentals leasing was still strong then there was a direct question on D. C, where you mentioned resident concerns, but I want to go back to the just the general in the opening statement can you just talk about that because you're the only apartment REIT that so far has really talked about resident concerns.

Sean Breslin: So just curious in your experience.

Speaker Change: Do resident concerns is that usually a good indicator for you guys that bad stuff is about to happen or there's just normal nervousness among people with their lives.

Sean Breslin: Or there's just, you know, normal nervousness among people with their lives. And it, you know, sometimes it does portend, you know, economic downturn or something. Other times, it doesn't. So I'm just trying to figure out how reliable that sort of feedback from residents is.

Sean Breslin: It sometimes it does portend.

Sean Breslin: Economic downturn or something other times it doesn't and so I'm just trying to figure out how reliable that sort of feedback from residents.

Sean Breslin: Yeah, Alex, it's Sean. I'm happy to take that again. What I said in my prepared remarks and then just reinforced it a couple questions ago is that we have not seen any impact on our data in terms of leasing velocity, renewal acceptance, pricing, etc., across the region. But I did say, and I think other people are hearing this and may have said it as well on calls, is that there's chatter in the market, as you might imagine, from people that are prospects, residents, or just people in the general community wondering about, you know, I have a job today.

Sean Breslin: Yes, Alex this is Sean happy to take that again, what I said in my prepared remarks, and then just reinforce a couple.

Sean Breslin: Questions.

Sean Breslin: Ed.

Sean Breslin: We have not seen any impact on our data in terms of leasing velocity renewal acceptance pricing et cetera across the region.

Sean Breslin: But I did say and I think other people are here in SMA have centered as well on the calls is that there is chatter in the market as you might imagine from people that are prospects residents are just people in the general community wondering path.

Sean Breslin: I have a job today, well I have a job tomorrow, what's the impact of this going to be.

Unknown Executive: Will I have a job tomorrow? What's the impact of this going to be over time, etc.? But, in terms of our historical experience, people tend to want to stay where they are in their homes when there's some uncertainty, and so I think that's all you're hearing is a little bit of uncertainty, people wondering how it's going to unfold, and leave it at that. That's that's perfect. I really appreciate that. Thank you.

Over time et cetera.

Sean Breslin: Scientific data, that's just chatter, that's coming through and a variety of different ways.

Sean Breslin: So I'd say people are a little anxious about it for sure.

Sean Breslin: Not unheard of given what's happening in the environment and obviously that's happening not just here in D C. But a lot of federal employment is spread around the country to so I think youre hearing that chatter. It doesn't mean that something is happening tomorrow.

Sean Breslin: Typically when we hear that kind of chatter, if theres something thats going to happen is typically a lag effect anywhere from.

Sean Breslin: Six to eight months in terms of what it actually means in terms of someone making a different decision. They tend to hunker down first and you'll see them take out discretionary spend like you're hearing about the airlines now as an example.

It's Ryan guys guidance things of that sort because people not making decisions on discretionary costs, but in terms of our historical experience people tend to want to stay where they are in their homes. When there is some uncertainty and so I think thats all youre hearing a little bit of uncertainty people wondering how it's going to.

Unfold.

Sean Breslin: And leave it at that.

Sean Breslin: That's perfect really appreciate that thank you.

Sean Breslin: Yes.

Haendel St. Juste: And our next question comes from Haendel St. Juste with Missoula. Hey guys, good afternoon. A couple quick ones from me.

Speaker Change: And our next question comes from <unk> St Juste with Mizuho Securities. Please proceed with your question.

Sean Breslin: Yeah.

Speaker Change: Hey, guys. Good afternoon, a couple of quick ones from me. So first I just wanted to go back and try once more if you guys are willing to provide.

Haendel St. Juste: So first, I just wanted to go back and try once more if you guys are willing to provide a guide for second quarter blends. And then my real question was more on LA and Boston, two markets which look a little slower relative to the rest of your coastal markets. Curious about your kind of expectations for those markets the next couple quarters. Yeah, Haendel, on the guides, all I would say is we are providing where the renewal offers went out in the low to mid-fives. So that's on that point. And then Boston and L.A., the only thing I mentioned in my prepared remarks and then in response to another question is just, you know, we're monitoring things closely at L.A.

Sean Breslin: Our guide for second quarter blends.

Sean Breslin: And then my real question was more on L. A and Boston two markets, which look a little slower relative to the rest of your coastal markets I'm curious about your kind of expectations for those markets. The next couple of quarters.

Sean Breslin: Yes.

Sean Breslin: On the guide so I would say is we are providing where the renewal offers went out in the low to mid fives. So that's on that point, and then Boston and L. A.

Sean Breslin: The only thing.

Sean Breslin: I mentioned in my prepared remarks, and then.

Sean Breslin: In response to another question has just.

Sean Breslin: Monitoring monitoring things closely and L. A we did see a nice sequential change in occupancy upward, which was helpful. But we haven't seen any.

Sean Breslin: We did see a nice sequential change in occupancy upward, which was helpful, but we haven't seen enough movement in asking rents since the beginning of the year to allow us to push rents harder. And I think that's a function of, you know, employment growth there has been weak across L.A., mainly due to the entertainment industry. There's probably also a little bit of uncertainty related to tariffs and impact on the ports, Long Beach and L.A. in terms of economic activity. So we just haven't seen a lot of movement there. Occupancy is stable.

Sean Breslin: Movement in asking rents since the beginning of the year to allow us to push rents harder.

Sean Breslin: And I think thats a function of employment growth there has been weak across all my family to the entertainment industry.

Sean Breslin: That's probably also a little bit of uncertainty related to tariffs and impact on the ports long Beach L. A in terms of economic activity.

Sean Breslin: So we just haven't seen a lot of movement there.

Sean Breslin: Occupancy is stable.

Sean Breslin: We're good with that, but we're going to need to see better job growth probably and maybe a little less uncertainty to see stronger performance. In terms of New England, the only thing I'd say is January and February were a little slower than we anticipated, but we've started to see, you know, significant upward trend in asking rents for March and April, which is quite positive. So that's all we're really seeing in New England. We're keeping a close eye on it in terms of any impacts from, you know, government funding on research or various other things, but we're not hearing or seeing anything related to that having a negative impact.

But we're going to need to see better job growth, probably and maybe a little less uncertainty to see stronger performance in terms of new England and the only thing I'd say is January and February was a little slower than we anticipated, but we are starting to see significant upward trend in asking rents for.

Sean Breslin: For March and April.

Sean Breslin: Which is quite positive. So that's all we're really seeing in new England. We are keeping a close eye on it in terms of any impact from government funding on research or various other things, but we're not we're not hearing or seeing anything related to that having a negative impact I think it just started a little bit slower than we would have thought and it really accelerated recently.

Unknown Executive: I think it just started a little bit slower than we would have thought and really accelerated research. appreciate that.

Sean Breslin: I appreciate that maybe.

Kevin O'shea: Maybe one for Kevin, looking at the the FFO picture for the year, looks like there's a pretty big ramp implied the back half of the year, I get that. A lot of that's probably, most of it is coming from the development, but I'm curious if there's anything else that you'd point to or perhaps is underappreciated in the back half of your numbers. Thanks.

Speaker Change: And maybe one for Kevin I was looking at.

Speaker Change: The <unk> picture for the year it looks like there's a pretty big ramp imply the back half of the year I get that a lot of that is probably most of it coming from the development I'm curious if there's anything else that you'd point to or perhaps is underappreciated in the back half the year numbers. Thanks.

Kevin O'shea: Yeah, it's Kevin. Take that one. Really, you know, we expect to experience similar drivers of sequential earnings growth over the balance of 2025. All the normal drivers you're accustomed to seeing with our business model. And it's consistent with the sequential earnings growth pattern in prior years from the first quarter all the way through the fourth quarter. So we expect a sequential same store revenue ramp in each quarter over the balance of the year. We expect sequential seasonally driven increase in same store offbacks, which Sean spoke to in Q2 and to a lesser extent Q3, and then followed by a sequential decline in same store offbacks in Q4.

Kevin O'shea: Yes, Kevin.

Kevin O'shea: I'll take that one.

Speaker Change: Really where we expect to experience similar drivers of sequential earnings growth over the balance of 225, all of the normal drivers you're accustomed to seeing with our business model.

Speaker Change: And it's consistent with the sequential earnings pet growth pattern in prior years from the first quarter over the fourth quarter. So.

Speaker Change: We expect the sequential same store revenue.

Speaker Change: And each quarter over the balance of the year, we expect sequential seasonally driven increase in same store opex, which Sean so two in Q2 and to a lesser extent in Q3, and then followed by a sequential decline in same store Opex in Q4, and then as you reference.

Kevin O'shea: And then as you reference, Haendel, we do expect development NOI to increase sequentially each quarter over the year as occupancies accumulate throughout the year. And here I just referenced back to the chart on slide 11 that shows the quarterly cadence of our 2300 occupancy. across the quarters of this year. So those are the key drivers. We do expect some capital costs increase somewhat in the second half as we pull down the equity forward. But those are the moving parts. It's the same moving parts we have every year in a normal environment. And it's directionally consistent with how our business works.

Speaker Change: We do expect development NOI to increase sequentially each quarter over the year as occupancies accumulate throughout the year.

Speaker Change: And here I'd, just I'd reference back to us.

On slide 11 that.

The quarterly cadence of our 2300 occupancies across the quarters this year so.

Speaker Change: That's those are the key drivers we do expect some capital costs increased somewhat in the second half as we pulled down the equity forward that those are the moving parts.

Speaker Change: Same moving parts, we have every year in a normal environment and it's directionally consistent with how our business works and if you just sort of look at in 'twenty last couple of years the difference.

Unknown Executive: And if you just sort of look at in 20, last couple of years, the difference in core FFO per share between the first quarter and the fourth quarters last year, I think was 10 cents. And I think the year before that was 17 cents in terms of the Q1 to Q4 ramp. So that's just sort of how things work on our business. And we still expect the same to happen. Got it, got it, thank you. Thank you.

Speaker Change: Core <unk> per share between the first quarter and the fourth quarters last year I think it was 10 and I think the year before that was <unk> 17 in terms of the Q1 to Q4 ramp. So that's just sort of how things work in our business and we still expect the same to happen this year.

Speaker Change: Got it got it thank you.

Speaker Change: Thank you.

Unknown Executive: And as a reminder, this is your last chance to enter the question queue. You can do so by pressing star 1 on your telephone keypad, that is star 1.

Speaker Change: As a reminder, this is your last chance to answer the question queue. You can do so by pressing star one on your telephone keypad Star one.

Linda Tsai: Our next question comes from Linda Tsai with Jeffreys. Please receive a Hi, thanks, just two quick ones. Timing of the settlement of the $890 million in undrawn forward equity, would that be more a 3Q or 4Q event? It's timing is just a function of our evolving capital uses and capital needs throughout the year. I'd say at this point, what we anticipate is perhaps a little bit in Q2, the vast majority in the third and fourth quarter. And so that's probably what I would anticipate from an analyst point of view in terms of what you might want to dial in for your assumptions.

Speaker Change: And our next question comes from Linda Tsai with Jefferies. Please proceed with your question.

Linda Tsai: Hi, Thanks, just two quick ones.

Linda Tsai: The timing of the settlement of the $890 million and an undrawn forward equity would that be more <unk>.

Linda Tsai: This is Kevin again, it's timing is this a function of our evolving capital usage and capital needs throughout the year I would say at this point, what we anticipate.

Linda Tsai: Perhaps a little bit in Q2, the vast majority in the third and fourth quarter.

Linda Tsai: And so that's probably what I would anticipate.

Linda Tsai: From a from an analyst point of view in terms of what you might want to dial in for your assumptions, obviously, when we get to the second quarter call, we'll have clear visibility on our capital uses and sourcing activity and our needs for the year. So we'll probably have a little more clarity for you at that point that I do think right now the vast majority is in the second half, perhaps a little bit in the towards the end of this.

Kevin O'shea: Obviously, when we get to the second quarter call, we'll have clearer visibility on our capital uses and sourcing activity and our needs for the year. So we'll probably have a little more clarity for you at that point. But I do think right now, the vast majority is in the second half, perhaps a little bit towards the end of the second quarter.

Linda Tsai: Second quarter.

Matt Birenbaum: Thanks.

Thanks, and then does the improvement in SaaS and the improving political climate in California make you think differently about the pace of diversification away from coastal markets.

Matt Birenbaum: And then does the improvement in SF and the improving political climate in California make you think differently about the pace of diversification away from coastal markets? All right. Yeah, hey, goodness, Matt. I guess the short answer is no. We've got a longer term vision for a diversified portfolio that's got exposure to different regional economic drivers and different regional regulatory exposures and constraints. We are on the path, and we will continue to... We keep an eye open for deep structural changes, but what we're seeing in California, it's good to see the economy picking up, particularly in Northern California, and that's a significant part of our portfolio.

Matt Berenbaum: Hi, Yes, Hey, Vin it's Matt.

Matt Berenbaum: I guess the short answer is no.

Matt Berenbaum: We've got a kind of a longer term vision for <unk>.

Matt Berenbaum: <unk> portfolio that has got exposure to different regional economic drivers.

Matt Berenbaum: And different regional regulatory exposures and constraints so.

Matt Berenbaum: We are on the path.

Matt Berenbaum: And we will continue.

Matt Berenbaum: And I opened for deep structural changes, but.

Matt Berenbaum: What we're seeing in California, it's good to see the economy picking up, particularly in northern California, and Thats a significant part of our portfolio. We know that has a high beta market.

Matt Birenbaum: We know that's a high beta market. The longer term trends, we are seeing some more support for increased supply in California, which is good. But there's also, you know, continued landlord tenant regulatory framework and constraints, which, you know, make it lead us to just want to limit how much exposure we have there in total.

Matt Berenbaum: The longer term trends, we are seeing some more support for increased supply in California, which is good but there's also.

Matt Berenbaum: Continued.

Handler tenant regulatory framework and constraints switch.

Matt Berenbaum: Make it lead us to just want to limit how much exposure you have there in total.

Matt Berenbaum: Thanks.

Matt Berenbaum: Okay.

John Kim: And our next question comes from John Kim with BMO Capital Markets. Please receive it. Thank you. That development cost breakdown on page 12 is very helpful, a little surprising. Is this because this is illustrative of your suburban garden style assets? There's a note on the page about that. And I was wondering if there's a difference between mid-rise garden and established versus your... Thank you.

Speaker Change: And our next question comes from John Kim with BMO Capital markets. Please proceed with your question.

John Kim: Thank you.

John Kim: The cost breakdown in page 12, very helpful a little surprising.

John Kim: Is this because this is illustrative of your.

John Kim: Bourbon garden's down assets.

John Kim: On the page about that.

John Kim: Was wondering if there's a difference between mid rise and garden and establish versus your expansion markets.

Matt Birenbaum: This is Matt. It's kind of a blended average of all. The vast majority of what we build is wood frame, so probably the most of what we build is high-density wood frame, mid-rise, either podium or what we call wrap, which would have a structured parking deck and four, five, six-story wood frame apartment building either on top of the parking or next to the BTR-type product. We're starting to develop more of that. It is about 40% of our existing portfolio, as Ben mentioned, which is frequently underappreciated. We have almost no high-rise in our current development pipeline.

Matt Berenbaum: This is Matt.

Matt Berenbaum: It's kind of a blended average of all.

The vast majority of what we build as wood frame so probably the most of what we build is.

Matt Berenbaum: High density wood frame mid rise either podium or what we call wrap which would have a structured parking deck and 456 storey wood frame apartment building either on top of the parking or next to the parking we are doing.

Matt Berenbaum: More.

Matt Berenbaum: Lower density three story walk up in BTR type product.

Matt Berenbaum: We're starting to develop more of that it is about 40% of our existing portfolio as Ben mentioned, which is frequently underappreciated. So.

Matt Berenbaum: In high rises is almost we have almost no high rise in our current development pipeline. So it does vary somewhat by product type, but it probably varies more just by location. So in the higher rent locations land will be a higher percentage.

Matt Birenbaum: It does vary somewhat by product type, but it probably varies more just by location. In the higher rent locations, land will be a higher percentage. In California, that land percentage is probably more like 20%, 25%. We're not actively developing in New York these days, but you'd see it even higher there. In some markets that are more garden markets, site costs are higher and the land is less. In North Carolina, land is sometimes not even 10%, but you'll have more site costs. You're moving more dirt around. It's probably more regional than it is product.

Matt Berenbaum: In California that land percentage is probably more like 2025%, we're not actively developing in New York These days, but you'd see it even higher there.

Matt Berenbaum: Some markets that are more garden markets site costs are higher and the land is less in North Carolina, Atlanta is sometimes not even 10%, but youll have more site costs more you're moving more turnaround.

Matt Berenbaum: It does vary.

Matt Berenbaum: More regional than it is product type.

Sean Breslin: Okay, and maybe a question for Sean, you mentioned on renewals, you're getting 100 to 150 basis point pushback or leakage on what you signed, what you send out. Is that higher than what it's been historically for you? I know you made a change recently. move all renewals on your app. Yeah, John. Now, the 100 to 150 basis point is the typical spread. The only time you'd see it significantly wider or significantly compressed is in extraordinarily weak markets or extraordinarily strong markets. But, you know, 100 to 150 is a long term average. I think that's a fair point.

Matt Berenbaum: Okay.

Speaker Change: Maybe a question for Sean you mentioned on renewals you are getting.

The 150 basis point pushback or leakage.

Speaker Change: And what you signed or what you found out is that higher than what it's been historically for you I know you've made a change recently too.

Speaker Change: Move of renewables on your App.

John Kim: Yes, John.

Speaker Change: 100 to 150 basis point is the typical spread.

Speaker Change: Long time, you'd see a significantly wider.

Speaker Change: We're significantly compressed as an extraordinarily weak markets are extraordinarily strong markets.

Speaker Change: But yes.

Speaker Change: <unk> is a long term average I think thats a fair point.

Sean Breslin: And then in terms of the second part was something about the app. I'm sorry, I didn't get that part. Yeah, I was just wondering if people were just more willing to push back on an app rather Oh, no. No, if anything, our centralized renewal theme, it's a pretty strict discipline as it relates to negotiating guardrails, what they're allowed to do, and it really comes down to where the, at the time someone's having a conversation with a resident, where their spot rent is relative to the prevailing asking rent for a similar apartment at that community at that time.

Speaker Change: And then in terms of the second part was something about the App I'm, sorry, I didn't get that far.

Speaker Change: I was just wondering if people were just more willing to push back on an app rather than over the phone.

Speaker Change: No if anything our centralized renewal Tam, it's a pretty strict discipline as it relates to negotiating guard rails.

Speaker Change: Good to do and it really comes down to where the time someone's having a conversation with the residents where the spot rent is relative to the prevailing asking Brad for a similar apartment AD tech community at that time.

Sean Breslin: That really is a key driver of it more than anything else. So, if anything, it's more strict now than it's been in the past. Because of the focus of the centralized team on just that activity. about it. Thank you.

Speaker Change: That really is the key driver of it more than anything else.

Speaker Change: So if anything it's more strict now that it's been in the past because of the focus of the centralized team on just that activity.

Speaker Change: Got it thank you.

Alex Kim: And our next question comes from Alex Kim with Zellman and Associates. Please receive it. You guys, thanks for taking my question.

Speaker Change: And our next question comes from Alex Kim with Zelman and Associates. Please proceed with your question.

Alex Kim: Hey, guys. Thanks for taking my question just a quick one for me here in <unk>.

Sean Breslin: Just a quick one for me here and apologize if I missed it, but I'm just curious how lease of velocity has trended this far and any changes to concessions usage to start the year. Thanks.

Alex Kim: Hey, guys, if I missed it but just curious how lease up velocity has trended thus far in <unk>.

Alex Kim: Any changes to concessions usage to start the year. Thanks.

Sean Breslin: Yeah, Alex, this is Sean. So far, so good. We really only had, if you looked at our development attachment, three communities in lease up during the quarter that we noted. And for the first quarter, you know, we leasing and occupancy was running around 22-23 a month. and concessions were, you know, roughly half a month on average. So, overall, relatively consistent with what you'd expect in the first quarter. Certainly would expect that to ramp up as you get into the second and third quarter kind of peak leasing season. Got it.

Sean Breslin: Yes, Alex this is Sean so far so good we really only had two.

Sean Breslin: We looked at our development attachment three communities in lease up during the quarter that we noted.

Sean Breslin: And for the first quarter.

Sean Breslin: Leasing and occupancy was running around $22 23, a month.

Sean Breslin: And concessions were.

Sean Breslin: Roughly half a month on average so overall relatively consistent with what you would expect in the first quarter certainly we would expect that to ramp up as you get into the second and third quarter kind of peak leasing season.

Sean Breslin: Got it and would you expect that concessions usage too.

Sean Breslin: And would you expect that concessions usage to moderate from this point onward as well? Not necessarily. I mean, you keep in mind, we're trying to lease up an entire community in one year or less as compared to, you know, stabilized assets where we have, you know, 40% turnover or something like that. So it's really more a function of market environment and how it unfolds over the next several months as to concession usage. But, you know, right now we're clearing the market at that level of concession. I don't have any reason to believe it would change at this point in time.

Speaker Change: Moderate from this point onward is Walden.

Speaker Change: Not necessarily I mean keep in mind, we're trying to lease up an entire community in one year or less.

Speaker Change: As compared to stabilized assets, where we have.

Speaker Change: 40% turnover or something like that so it's really more a function of the market environment and how it unfolds over the next several months as to concession usage, but right now we're clearing the market at that level of concession.

Speaker Change: Not have any reason to believe that the change at this point in time.

Sean Breslin: But if you saw the market shift to be much stronger, much weaker, that would typically drive the concession volume.

Speaker Change: But if you saw the market shifts to be much stronger much weaker that would typically drive.

Speaker Change: The concession volume.

Speaker Change: Got it that's helpful.

Unknown Executive: Thanks for your time.

Speaker Change: Thanks for your time.

Speaker Change: And with that there are no further questions at this time I would like to turn the call back to Ben for closing remarks.

Ben Schall: At this time, I would like to turn the call back to Ben Schall for closing remarks. Thank you and thank you everyone for joining us today. We look forward to connecting soon. Thank you.

Ben: Thank you and thank you everyone for joining us today, we look forward to connecting soon.

Speaker Change: Thank you.

Unknown Executive: With that, that does conclude today's teleconference. We thank you for your participation. You may disconnect your lines.

Speaker Change: That does conclude today's teleconference. We thank you for your participation you may disconnect your lines at this time.