Q2 2025 Equity Residential Earnings Call

U 2025 earnings conference call and webcast.

Today's conference is being recorded.

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

Good morning, and thanks for joining us to discuss Equity residential. Second quarter, 2025 results, our featured speakers today are Mark Perell our president and CEO Michael mellis, our chief operating officer and Bob Garen, our Chief Financial Officer, Alec Brackenridge. Our chief investment officer is here with us as well for the Q&A. Our earnings release is posted in the investor section of equity. Apartments.com. Please be advised that certain matters discussed during this conference call May constitute forward-looking statements within the meeting of the federal Securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes. No obligation to update or supplement these statements that become untrue because of subsequent events. Now, I will turn the call over to Mark Perell.

Thank you, Marty. Good morning, and thanks for joining us today. I will lead us off with some top of the house commentary. Then Michael manelis. Our chief operating officer will provide color on our second quarter performance as well as what he is seeing in the markets today and an update on some of the initiatives. We have going on it will then turn the call over to Bob guarana in his last call as our CFO before. He takes over as our chief investment officer and Bob will provide some color in our guidance changes and then we'll go ahead and take your questions. Alec Bracken Ridge or soon to retire soon.

Tio is here with us for the Q&A.

Our second quarter results and guidance continue to reflect the sustained. Demand and excellent resident retention that we are seeing across our markets. We see this demand as being supported by nearly full employment in the country, as a whole, with the overall. Unemployment rate being only 4.2% though, the pace of job growth is, certainly slowing

The unemployment rate for our key demographic, the college-educated, remains even lower at 2.7%.

We're also seeing continued High retention rates, as more residents choose to renew with us. Fewer and fewer residents are moving out to buy homes and as we and other operators, often prioritize occupancy and renewal rate management over new lease growth and a world. That is more uncertain than usual, for residents and landlords

Also, we continue to see the forward setup for our businesses outstanding and see above Trend, Revenue growth in future years is likely given the large apartment Supply decline. The expensive and unavailable, single family-owned housing market, and societal Trends. Favoring renters ship.

As we talked about at our investor day, earlier this year, our shareholders benefit from our unique and diversified portfolio.

We have a differentiated exposure from our competitors that includes a collection of assets across the urban centers of many coastal markets. This gives us a distinct opportunity to outperform, as improving conditions—particularly continuing declines in new supply and improvements in quality of life in these urban centers—drive faster cash flow growth.

To illustrate that further. We are already seeing strong Revenue results in places like New York City and downtown San Francisco where Supply is already abated. And with more Supply declines on the way we are optimistic, our results can continue to be above Trend in these areas,

Across our markets. We look for a balance of both Urban and Suburban assets that capture the changing needs of our primary renter demographic.

Putting this portfolio on top of the most efficient overall operating platform in the space. When you take into account overhead, capital expenditures, and operating expenses, you have a vehicle that should outperform in the near term and over the long term because of its focus on higher-earning renters across a broad array of markets.

Finally, while good job growth is important to all apartment markets. It is especially important to drive absorption and oversupplied markets. So we expect our portfolio with its tilt towards lower supplied markets and submarkets and relatively modest amount of development properties in Lisa to exhibit more resilience, if job growth continues to Wing

On the transactions front in the quarter we continue to build out our presence in Atlanta with the acquisition of an 8 property portfolio in Suburban submarkets, this is a market we have been favoring in our recent acquisition activity as we expect Supply here to decline more quickly than in other Sunbelt markets.

We now have 22 properties spread throughout targeted submarkets within the Atlanta metro area.

These 8 new store Properties Plus 7 assets, that were acquired last year compliment and round out our current 6 property. Same store portfolio, that is focused more in Midtown, and in closer in submarkets,

A broad portfolio and take advantage of our new scale and Contracting for local services like Landscaping. As we do in other markets, where we have a large number of properties.

While we continue to look for opportunities to add to our portfolios in our expansion markets and certain Suburban, submarkets of our established markets. The transaction Market is not as active as we had hoped, it would be at the beginning of the year.

As a result pricing has become very competitive with cap rates for desirable assets, we wish to acquire often in the high 4% range, significantly lower than the cost of debt even for us with our highly rated balance sheet,

As you saw in our release, we have lowered our Acquisitions expectations for the full year to 1 billion dollars from 1.5 billion dollars and expect to match sales and Acquisitions this year.

Nonetheless, we certainly have the ability to accelerate our Acquisitions. Should attractively priced opportunities arrive.

Before I turn it over to Michael, I want to thank Alec Brackenridge for his leadership, his friendship, and for all his hard work over the years in creating value for our shareholders. Alec will work with us, assisting in the transition as we finish out the year.

We're also excited for Bob and no, he will thrive in his new Chief investment officer role.

And finally, I want to welcome Brett McCloud, Equity residential, Brett will take over as our CFO and a few days and we are very excited to add his deep Financial experience and you perspectives to our team.

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

Thanks Mark, and thanks to all of you for joining us today. Our second quarter results, exceeded our expectations from the beginning of the year and we're about in line with our expectations going into the leasing season.

A Financial Health of our residents, remain strong, the average household income of our residents who moved in with us. In the second quarter is up 8 and a half percent from the same quarter last year and rent as a percent of income remains low at 20%.

In addition, as Mark mentioned, we are not losing residents to home purchase and in fact, that number is sat at 7.2% in the quarter, which is among the lowest levels, we have seen,

Our Blended rate growth of 3%.

Was about where we thought it would be driven by strong renewal rate of 5.2% with 60% of the residents. Renewing in the quarter.

Our intense focus on customer satisfaction and stronger than expected results. From our centralized renewal process have driven this performance

Our physical occupancy was very good at 96.6%. New lease rate was slightly negative in the quarter which reflects that while there is good. Demand, it is a bit price sensitive and Concession use continues in a number of our markets, particularly those with heavy Supply.

As we look to the markets, New York continues to benefit from high occupancy. Actually, the highest in our portfolio and very little competitive new Supply leading to some of the best Blended rate growth in our portfolio, with the man being driven by a steady job market. We continue to expect this Market where we have a predominantly Urban portfolio to be 1 of our best performing markets in 2025.

Boston has had steady demand leading to good occupancy in a strong renewal rate. The market is feeling some of the pressure and uncertainty from actual and potential cuts to the Education and Research sector.

As a result, the job market seems a little softer here in foreign inbound, with slightly below historical norms.

Our Urban assets continue to outperform our Suburban ones as the new Supply is more focused in the suburbs.

Our bias here will continue to be occupancy, focused and the second quarter was already up, 90 basis points, sequentially.

Washington. DC has been an excellent performer throughout the first half of the year with high occupancy and good retention and really strong rent growth

Not surprisingly, we have recently seen a slowing in the market due to the uncertainty around jobs, given the cuts by the administration.

While the government is not the only employer in the market is, clearly has an influence on the overall field and confidence levels.

Currently, our pressure is being felt in the district and areas of Northern Virginia.

velocity slow to bit in July, but demand recovered quickly, as we backed off on rate, which is allowing us to maintain strong occupancy,

Despite the recent softening the Washington DC Market remains on track to be 1 of our strongest Revenue. Growth markets in 2025 with a very significant drop off in Supply. Expected in 26.

Fruition at a pace, even beyond what we expected.

Our Blended rate growth at 5.8% here is the best in our portfolio, driven by strong new lease and renewal increases with sequential gains and occupancy.

This is a great example of where we saw a recovery in full force and drove very robust seasonal. Price acceleration including the pullback on confessions

Tech jobs are steady with a lot of continued AI focus in the market.

During the second quarter, we observed, very favorable migration patterns with 8% more move in coming to us from outside the MSA and 5% more movements coming to us from out of state.

We are optimistic that these migration patterns continue, especially in the downtown submarket. As the city is really starting to feel the positive impact from the focus on quality of life issues. Competitive supply in the market at less than 1% of inventory is very manageable. We believe this will be our best performing market this year.

In Seattle, the improvements continue with the market working past the quality of life issues that have been a challenge.

Seattle was seeing a slow and steady job growth from the tech firms, leading to modest growth in office-using jobs, which is also being positively impacted by the return-to-office policies of big employers like Amazon and Starbucks.

As expected, supply pressure was felt in the city of Seattle and Redmond submarkets, which impacted some of our new lease pricing power. But the good news is that most of the concentrated deliveries are behind us, and this is likely to be a temporary condition.

Concessions are still in wide use, as the market seems to have become accustomed to them over the past few years. Overall solid employment and an easier comp for us in the second half of the year, as Seattle continues to be one of the top-performing markets for us this year with a great setup in 2026.

Los Angeles continues to face challenges and underperform. Our pretty modest beginning of the year, expectations.

Lackluster job growth driven by a pretty weak entertainment sector along with the quality of life issues. Are keeping pressure on demand,

our West LA and Suburban portfolios are doing better than our assets located in Korea and Mid Wilshire submarkets.

I'm the hopeful side, a very large tax incentive should spur local employment by driving the return of filming and production to the market.

We have good occupancy, overall, but it appears that our rents peaked in early June.

This is a good example of a market where our focus is on retention and capturing good. Renewal rates while maintaining occupancy as overall pricing power with softer than seasonal norms.

Orange County and San Diego are performing in line with our expectations for the year. New Supply and modest job growth are keeping pressure on rents after a number of years of strong performance.

And finally, in our expansion markets.

Denver continues to feel the impact from Modest job growth and high levels of new Supply particularly in the downtown Market.

In session use is heavy in the overall Market. We have a good Pace on our leasing volume, but a fair bit of price, sensitivity and deal shopping is impacting new lease growth and making us prioritize retention, and renewal rates. Our Atlanta portfolio is performing in line with our expectations for the year as a reminder. Our same store portfolio. Here is just 7 assets and his primary located in more urban locations, like Midtown unlike our newer Suburban acquisitions.

The urban areas are experiencing a lot of new Supply and Concession use. But it appears that this submarket found a bottom as we have had a few months of stability with early signs of potential improving conditions, our non-s, same store properties, which I mentioned are more Suburban. Focus will join the same store set next year and are performing at or slightly better than our underwritten expectations, and clearly better than our Urban Atlanta properties.

We feel good about Dallas. Demand is strong due to better than average job growth in the market. But concessions are plentiful as the market absorbs Supply, particularly in select submarkets.

Similar to Atlanta our newer Acquisitions which are in less Supply. Concentrated sub markets will join the 2026, same store set and tend to face Less Direct supply pressure and are performing better with fewer concessions and stronger. Occupancies

Switching to Innovation and automation updates the opportunity to apply artificial intelligence in our business is really exciting.

Fraud detection resident underwriting and user satisfaction.

Given this success. We are accelerating the rollout aiming for full deployment by end of year, which is about a quarter earlier than a than the original time frame.

Additionally, our new delinquency management AI will be fully deployed by the end of this month. And so far we can see that consistent engagement with customers improves overall payment behaviors.

All of these Automation and conversational AI, initiatives are set up to dramatically, improve both our customer experience and operational efficiency.

As we think about the third quarter, we expect blended rates to begin to moderate. As usual, with strong retention and occupancy continuing against a backdrop of slightly lower achieved, renewal, and new lease rates.

Which combined will result in an expected Blended rate growth range of 22, 2.2 to 2.8% for the quarter.

With our occupancy holding steady and Resident, turnover, continuing to track at record, low levels, we are well, positioned for a solid back, half of the Year, especially as Supply, headwinds continues to subside.

As I think about our setup for 2026, we expect to have normal embedded growth, continued, strong renewal performance and documents see against a backdrop of much less competitive new supply. Pressure at this time, I will turn the call over to Bob to walk us through the financial results and guidance changes.

Thanks, Michael is Michael mentioned. I'll walk through our guidance changes before opening it up for Q&A.

Starting with same store Revenue, the 15 basis point increase in the midpoint of our same store Revenue, guidance is driven primarily by better than anticipated, retention and improved occupancy growth

Which Michael already discussed.

As we discussed at the beginning of the year, other income growth and bad debt, Improvement, remained, back, half, loaded and thus far our right on track with our original guidance, expectations,

We continue to expect improvements in those areas of 70 basis, points and 20 basis points respectively.

Turning the same store expenses we've revised the midpoint of our expense guidance range down by 25 basis points. This Improvement is driven by better than anticipated. Real estate tax insurance, and payroll growth offset in part by higher utilities expenses.

As we noted in the release utilities this year, our suffering from both the difficult comparable, period and higher commodity prices along with elevated Water and Sewer charges.

Those elevated Water and Sewer charges came from higher usage in Southern California as we dealt with mitigating Wildfire risk earlier in the year.

Outside of those categories, most of the other categories remain on plan.

As a reminder, before we move on from expenses about 50 basis, points of our total expense growth in 2025 is related to our bulk Wi-Fi, roll out and is included in repairs and maintenance. This program is a creative to noi growth given its other income contribution. But is an outside driver this year to expense growth.

With these revenue and expense improvements. We are increasing our same store. Noi growth midpoint by 30 basis points, which is in the top half of the prior range.

before discussing ffo, I want to remind everyone of the expected Cadence of same store, Revenue growth for the remainder of 2025,

we continue to expect Improvement in quarter over quarter, same store, Revenue growth in the last 2 quarters of the year.

This is driven by the compounding effect of positive Blended rates and leasing activity from the first half of the Year. Strong continued, physical, occupancy and back. Half, loaded improvement from both bad debt and other income. Like I just discussed

Finally we're in the midpoint of our nfo range by 5 cents to the top end of our prior range page 2 of the release provides detailed reconciliation of that change. But let me provide a little more color here.

2 cents of the Improvement is coming from the same store adjustments. I just described

1 cent is coming from better performance in our lease up portfolio, which is largely due to outside performance in our Suburban. San Francisco lease up and our Suburban New York Lisa while other communities are largely in line with expectations

2 cents of lower transaction activity. Noi is reflected as well from our changes in our transaction activity guidance from 1.5 billion in Acquisitions down to 1 billion.

Performance from communities acquired, thus far is in line with our underwriting and our original guidance.

We also have 3 cents of lower interest expense due in part to that change in transaction, volume, as I described and also slightly better refinancing rates.

And finally we have 1 set of improvement from other items including overhead.

1 final note, before I turn it over to the operator, in the second quarter, we attractively refinanced, our 2025 maturity

Are not including any further debt issuance in our guidance, given that we currently expect to match fund our 1 billion in acquisition activity, with 1 billion in dispositions, our next meaningful, debt maturity is not until November of 2026.

And with that, I'll turn it over to the operator.

Thank you, if you are dialed in via the telephone and would like to ask a question.

Please signal by pressing star 1 on your telephone keypad. If you are using a speaker-phone, please make sure your mute function is turned off to Liar, signal tree to our equipment, again, press star 1 to ask a question. We'll pause for just a moment.

We'll go first to Steve Aqua. What's evercore isi?

Uh, thanks, good morning. Um, you know, I realized we're a little bit out from kind of the full 26 guidance, but as you just sort of think about the pluses and minuses as you kind of look out over the next kind of 12 to 18 months, you know, I guess is the supply picture coming down. I guess able to offset maybe a slowing job market and I guess what are the puts and takes as you think about growth uh into next year.

Hey Steve, this is Michael. So you know I think I gave you a little bit of color just in the prepared remarks like the setup that we see, you know, I think for us, you know, starting the year with a pretty normal kind of embedded growth maintaining strong retention. And if you think about what we just saw with kind of, some of the job, we forecast, and those numbers, you know, I think for us the most important thing for, uh, next year is really how much less competitive Supply we have. And by competitive Supply, I'm looking at the proximity of new Supply within a 1 or 3 Mi radius of our assets. I mean we just have so much less new Supply that's going to be needed to be absorbed in the markets. So I think at this point any level of job growth that we see next year is just going to add pricing power to what we believe is a pretty solid setup for 2026.

Okay, thanks and then Mark maybe just a bigger picture you sort of talked about um, you know, kind of your enthusiasm for San Francisco and New York. And

Not asking you to second guess your decision about moving into the expansion markets. But you know, do you um you know, do you rethink sort of the mix of the portfolio and you know how do you maybe think longer term about you know the uh the contribution from expansion markets versus the established markets and you know are you likely to lean more into the established markets or do you still feel like

You need to get to that 8020 or 7525 next.

Yeah, thanks for that question. Steve, appreciate that. So, you know, the goal here is, as we said at the investor day to build that kind of all-weather portfolio around our higher, earning customer, you know, thinking about supply and demand, risks and opportunities and of course, regulation and resilience. And so, nothing that's happened. Has changed our perspective. I mean our view is that our portfolio is super well positioned for at least the next year and a half. Given as Michael said, the lack of supply and even the declines in Supply, we're already in a low Supply situation in San Francisco. And next year is even better and New York feels great. So those markets are doing their job. Meantime, these expansion markets, which we chose, you know, Denver Dallas, Atlanta and Austin, our suffering from Supply. And again, as we said an investor day, we knew that would happen, but they are good job, growth markets and we think they will pick up. I will make a note though.

Maybe with the exception of Atlanta, we don't think next year is necessarily the year that all these markets are going to turn around that we're in. We think the Sun Belt recovery is much more about absorption than about delivery dates and that the lease up will take some time. So to kind of sum it up Steve, we think having that balance between Suburban Urban and most of our markets New York will always be a little more urban markets like Dallas always be more Suburban sticking near this higher end earning customer.

And have been balanced because there'll be a day when these demand markets are a good place for us to be and we'll have some of that in our kind of recipe of portfolio or kind of, you know what, we're composed of and then we'll continue to have this drive from these Urban centers. So you know, again I feel really good about where we are. I mean we we could have bought a lot more in these Sunbelt markets earlier and and we'd be hurting right now. So I think taking our time being thoughtful getting close to that 20% goal but that goal is not 1, we're afraid to vary from if there's opportunity elsewhere. So we'll keep moving along here but we don't have a timeline. We need to meet

Thank you.

We'll take our next question, from Jana gallon with Bank of America.

Thank you. Good morning.

Um, Michael. Thank you so much for the very thorough Market overview. Um, can we just go back to eqr? Use of concessions. This spring and summer, leasing season relative to last year's and trying to understand if this kind of helps the setup for next spring on the renewal side.

Yeah, hey, it's Michael. Um, so I I guess I'll just frame up the concession use right now which is on a cash basis. We use more concessions in the second quarter than we originally expected. You know, overall, we averaged about 7 Days of concessions per move in which is down from the first quarter, but still about a day more than what we would have expected. And you know, the increase is driven, you know, by continued, targeted leans into the occupancy along with some of the kind of more Supply impacted submarkets, you know, just having brighter. Concession use than we originally thought. So I think right now our view is that we're going to continue to see elevated. Concession use in the expansion markets, a few of the LA submarkets, hopefully, Seattle, and San Francisco are going to continue to see this reduction in the pullback that we've seen, you know. So if you think about the setup going into you know spring and even peek leasing season next year, you know? Again if we start the year, well positioned.

And we have, like I just mentioned to Steve, any bit of job growth. We really should see some, you know, kind of good rent acceleration against the backdrop of having all these folks from this. You're getting those concessions should drive some of that kind of net effective increase.

Thank you and then on um kind of Greater DC.

Slight differentiation between the district and Northern Virginia, or right now they're pretty similar in terms of kind of what you're seeing in terms of demand.

Yeah, I think I would say for us, it's more systemic. You know, the the the district clearly we have I think 12 properties. Right now we're feeling a little bit of that softness there and when I look into the northern Virginia submarket it's really kind of isolated pockets in the RBC Corridor that you're feeling some of that pressure you know DC had just such strong momentum you know in the first half of the year and it really wasn't until we kind of got into that late June and July period, where we started to feel a little bit of this softening or a pause. But like I said, in the prepared remarks, the minute we pulled back on some of that rate acceleration, we saw that demand come back and we're able to recapture some of that occupancy. So, I think for us this remains kind of 1 of these watch markets, right? We get a lot of headlines, you got a lot of the kind of government layoffs that will kick into gear here in September and we just need to keep our

Eyes on it.

Thank you.

We'll take our next question from Eric wolf with City.

Hey, thanks. Uh, you discussed some of the Dynamics for the setup for for 2026, which is the extent that renewals have performed a bit better than expected compared to new leases. Um, is it setting up for a situation where you're gained a lease is, is a bit bigger than normal at year end and thus could impact 20126 or is that not the the right way to think about it?

Um hey Eric it's Michael. So I mean right now I guess I would tell you the portfolio has a loss to lease of about 2.6%, kind of did what you thought. You know. We started the year at a moderate gain as rent acceleration kicked in it. Flipped us into the loss you know? Right now the loss is probably 50 to 100 basis points lower than what you would expect and that's really just from the dampening effect of July not getting up to that peak level. So as I think about for the rest of the year, you know we do expect normal rent deceleration to occur in the third quarter and even into the fourth quarter. So I think at this point I wouldn't be surprised to see us back into a moderate gain, uh, but I don't think we're going to see anything that's really well outside. The realm of norm.

That's helpful. And then I, I believe you said a moment ago that you don't really see the Sun Belt recovering, that much next year. Um, I guess I just want to dig into that further because it does seem like absorption is has been very strong in those markets supplies, coming down next year and if I think back to some of your Acquisitions, I thought might be remember this wrong, but I thought year 2 was expected to see some pretty big run gains. So I was just trying to understand if that sort of view on the Sun Belt was a change, um, and sort of what drove that change.

It's really a property by property sub, submarket by submarket consideration. And there are certainly Pockets. They're seeing very, very little Supply and and a lot of the properties that we bought that are entering new star in that new store. Um, I'm sorry, they're entering same store are in that condition. So, you know, I think that we will hit our performance. We're on track to do that now and we do expect to see recovery, um, but there's certainly other markets. Um, you know, Austin is an example where we have 3 properties but other markets like Nashville and Charlotte and Phoenix, that just have this overhang of units that still need to get absorbed. So when we talk about the Sun Belt, more broadly, it seems to us that the challenges are going to extend for a uh, into 27 in some cases.

Got it. Thank you.

We'll go next to hendel St, just with missou, host security.

Hi, this is Mike on for Hando at Meizuo. My question is,

Um, can you talk more about your near-term expectations and operating strategy for DC and La Market since the back half of the year? How much do you expect concessions to pick up?

From here.

Yeah, hey Mike, this is Michael. So, you know, I think in the DC Market we are going to have a bias right now towards maintaining the occupancy and what we see, you know, concession use right now in the market. It is very isolated, you know, there's still a lot of Supply in DC right now, but it's a dramatic drop off in 2026. So I think for us we're going to watch just the level of competitiveness overall, with the concession use in DC. Uh, but I do expect we'll see some kick into gear as we get into that shoulder period, you know, specific to La. I think it really does vary as to, which submarket we're talking about, you know. It was a great surprise for us to see some momentum in West, LA. As I said, in my prepared remarks, we haven't seen that in many quarters. Um, so I don't anticipate. We're going to see a lot of concession use there, but I think clearly in, you know, the downtown Korea Town, uh, Mid Wilshire, you know, you're going to see concessions, continue in full force probably

For the balance of the year.

Thanks for that and just 1 follow-up where are you sending? Um you know in terms of your live real time leasing data where you sending renewals out um for August this is July August September.

Yeah, so for the next several months, uh, all of the renewal quotes have been sent out and we sent out anywhere, you know, just slightly over 6% and I think right now we would expect to achieve increases somewhere around 4 and a quarter to 4, and a half percent, on a net effective basis. We have a lot of great insights. We have a centralized renewal process right now. A lot of confidence in this renewal performance, um you know but typically this is the time of the year. You know that we tend to lean in to retention tend to negotiate a little bit more as we enter into the shoulder periods and at this point, we expect that's how we're going to operate the portfolio.

Thank you.

So the next 2, John Kim with BMO Capital markets.

Good morning. Uh I'm not sure if you addressed this but um is there an update on your Blended lease uh guidance for the year. I know you provided third quarter but just how does the year shake out with seasonality coming up?

Yeah. Hey John, this is Michael. So again we gave the guidance range for the third quarter being 2.2 to 2.8%. So a midpoint of 2.5 that mirrors our year to date Blended performance. I think sitting here today, I would tell you that it the beginning of the year, we gave a blended guidance range of 2 to

3%. So, a midpoint of 2 and a half, I do think we're going to see some deceleration in the fourth quarter. So, sitting here today I would say we're probably pointed to that bottom half anywhere between the 2 and 2 and a half percent for the full year blend now

So like 20 30 basis points off.

Okay, great, thank you. Um, and then my second question is on uh, cap rates you're seeing in in the Sun, Belt versus your more established markets. Um, do you anticipate more attractive opportunities, especially in markets, like DC and New York? Where there could be some political uncertainty.

Certainly, I haven't seen it yet. You know, cap rates are around a 5 in most places and in some of the markets, you know, 4.75. Um, and particularly some of the expansion markets where people are perceiving that there'll be more recovery. But as I just said, you know, some of these markets we're just not so sure about the speed of that. So, um, we're out looking for opportunity every day. Um, but we would match that with dispositions that we also have in the market.

Thank you.

We'll go next to Alexander Goldfarb with Piper Sandler.

Uh, thanks and good morning and uh, Alec uh, best in retirement. Uh, Bob best in CIO and welcome aboard. Uh, Brett. So 2 questions here. Uh, first, Mark you mentioned, uh, the quality of life Improvement. That's really helped in San Francisco and Seattle, obviously in New York where, uh, debating going the opposite way, but at the same time, uh, mandanis policies on on rents, you know, with the regulated units would be a boost to market rate rents. Uh, you know, if you, if you freeze the regulated part of the market. So, as you guys, look at your New York exposure, do you view uh, the rent freezes, as a net positive and more than offsetting quality of life concerns? Or are you more concerned about potential quality of life versus the ability to gain on Market rents?

Hey Alex, thanks for those good wishes to the team. Yeah, we're thinking about all those things. So let me just talk about how we're thinking about the election, and there is a fair bit of time to go until November. But, you know, Mr. Mommy has spoken frequently about needing to increase the housing supply in New York for New Yorkers at all income levels. So we have been working through the trade associations to just remind him and his staff about how important the private sector can be in meeting that goal. I mean, as a New Yorker, you know that public-private partnerships, like the 421a program and the office to residential conversion programs, have been really helpful in adding units to the market. We are also trying to get across the point that to the extent you freeze rents or do other things that are anti-housing, you're going to discourage capital in New York. That means that fewer units will be preserved, and fewer units will be created. So we're having those kinds of conversations. Again, there's a while to go until the election is resolved, just to remind everybody.

Everyone a lot of the power on rent control and a lot of other big issues rests in Albany not in the mayor's office. So the amount of things that can be done is a little bit more limited than maybe the campaign rhetoric. So we have a relatively small portfolio, percentage of our New York portfolio that would be subject to any changes in the rent stabilization, increase rates so, um, yeah. And you know, here in Chicago, we have a new mayor and, you know,

Quality of life. Here is actually improved over the last year, so we think that the dialogue is shifted, and we think people of all political stripes are interested in improvements in quality of life, and, and balancing both, you know, Justice and personal security. So, you know, we're hopeful Alex that that continues in New York keeps making good progress there. And we'll keep pushing with the, you know, potential mayor's office to discuss the benefits of housing Supply versus overregulation.

okay, the second question is, uh, you know, you talked about DC and Doge but

Boston, with the foreign students, clearly Boston's big college town. Uh, so just wondering if there's been any change in foreign student, appetite given, you know, they are a part an outside part of that uh, renter Market.

Uh hey Alex, it's Michael. So yeah. So we've been watching, you know so for students is a pretty low percent of our move in overall, in the company, they represent about 3% of our occupied units and we still have about another month to really track all of the inbound Student Activity sitting here. Today as a snapshot for Boston, it does appear that the student, um, inbound activity through the end of July is a little bit below normal. So, a little bit below where we were at the end of July of 2024. And inside that, we do see a little bit of softening in the 4.

Born in bile migration as well. These are very small quantities though. So I don't know if that I would read too much into it yet and like I said, we still have a month to go until we really close out kind of that student season.

so the next 2, Michael Goldsmith with UBS

and uh,

Generally, it seems like the demand is there, but I I guess I was just kind of wondering what do you think it would take to see a little bit more pricing power?

Hey, Michael. Michael. So I mean, at this time of the year, um...

It's not very common to all of a sudden see acceleration into pricing power. I think clearly we would need to see some consumer confidence improve in many of the markets and any kind of acceleration in job growth. That being said, we are going to go into a period where we do have easier comps in many of our major markets, and we have a period of time where we're bumping up against less and less supply pressure. So that could be a kind of mitigating factor to normal deceleration trends. But at this time, I don't anticipate us seeing any kind of acceleration.

Yeah. And and and as a follow up, uh, have you seen any impact on the San Francisco band of algorithmic pricing is, is that any impacted

Thanks.

Yeah, so I think I heard the question right? It was about algorithmic pricing. So, we in San Francisco, I mean, there's various proposals and all sorts of jurisdictions on this. So, you know, first off, we do obviously operate in full compliance with all these rules, and so it's not a big issue for us. We do use across the port.

Folio lro where we're allowed to, but generally speaking lro which is our yield management. Tool is just 1 tool in the toolbox. We use a lot of different means to price our units and it just doesn't um matter a great deal to us if we can't use lro going forward. So I will say though it seems like it's more of a that the these sort of regulatory efforts are more of a attacking. A symptom of the problem of a housing shortage it isn't algorithmic pricing that makes rents go up and down. I mean, Dallas has declining rents and there's plenty of people using algorithmic pricing there. It's the dynamic between supply and demand and so the markets you know, that add Supply are going to have less of this kind of outsized rent growth and so I I feel like we need to educate policy makers that while it may feel like emotionally rewarding to ban algorithmic pricing, that isn't what's causing rents to go up. It's the supply and demand Dynamics in these markets. So what

We work with our trade associations to do that, but it isn't going to make a great deal of difference to us and how we price our units.

Thank you very much.

Google next to Adam Kramer with Morgan Stanley.

Hey, great. Thanks for the time and all the best to you Alec going forward. I just wanted to ask about, um, you know, been a few articles recently about sort of AI and sort of the impacts on Call of Duty level, um, sort of jobs and, you know, I think both in in sort of

Um, you know, types types of employment that, you know, you would think would be disrupted by by AI, but also other other types of jobs as well, sort of focusing on the entry level demographic. I know that sort of disproportionately a renter kind of demographic. Um, so wondering, if you've seen anything in your portfolio, sort of inbound demand wise that, you know, can maybe see if if AI is having a real impact here or maybe these these articles are a little bit off base.

Yeah, thanks. That's a really interesting question. And I think we're in the early Innings of determining the impact of AI. I think, as you heard from Michael manellas remarks, we do see the impact of AI in demand in San Francisco. And that's why it's good for us to be levered to these Tech hubs, as well as to markets that are maybe more broadly Diversified like uh Los Angeles or or um, or Atlanta. So we do see some benefits to the portfolio already from the money and the hiring being done to get these big large models moving and grooving, but I think it's a little early to tell whether AI will affect you know, entry-level lawyer employment.

Mint and other people that do occupy, our units throughout the country, I do wonder if there aren't going to be a whole new class of jobs, created relating to AI, governance, relating to how you ask the model questions, and how you deal with it and outputs and what I've heard from some investment analysts and others is it's great to ask the model questions and it's great to check those answers very thoroughly with your analyst afterwards. So I think the job story is still to be written on AI in uh, in the country as a whole. But we're happy to be leveraged to where those jobs are creating being created like in San Francisco right now.

Recognizing sort of the acquisition guidance was reduced, this position is maintained. I think you guys have been pretty clear in the past on sort of your view around buybacks, your view around development, and only wanting to sort of use retained cash flow for development. So just wondering, as you sit here today.

You know, how would you sort of Stack rank the, the capital allocation opportunities to Capital use opportunities, um, and sort of any change to the prior thinking, with regards to BuyBacks, uh, development or or maybe something else here.

Yeah thanks Adam. It's Mark again and Alec May supplement this a little so I mean we continue to think about acquisition opportunities of price correctly as helping us attain that goal of the balanced portfolio. I talked about and driving better cash flow growth over time and we think that is a good use of capital but those Acquisitions have been priced very dearly in the markets and submarkets, we're interested in. So we'll remain really thoughtful. We're looking really hard at some deals local supply and demand conditions where we can buy at discounts to replacement costs. But again, we've been very disciplined on that. So we do long term still like buying in the sub-markets and markets. We've talked to you about, you know, Dallas Denver, Atlanta Suburban, Seattle, Suburban, Boston, maybe some Suburban DC, so we'll keep focused there. But um, that is going to be a goal. Uh, we're open to doing BuyBacks. We did some as you know, in late, 23 and early 24. If we were to do BuyBacks we would fund those with assets.

Sales. I think that's more prudent right now than incurring additional debt.

Um, and you can see that we've been selling some of our, um, lower return assets at this point in the high fours to low to mid 5 cap rate range. And when you compare that to where our stocks trading that, you know, it's a meaningful amount of value creation for shareholders. We do need to stay conscious though. On the buyback side, about descaling, the company we've talked on some of the calls, I know, you know, this that you can really create pressure on overhead and operating expenses by getting the portfolios too small in a particular Market. Um, so that's something to be mindful of. We also have a lot of gain and a lot of our assets tax gain. And again, that's kind of a natural limiter on how much dispositions can fund share BuyBacks. We're also looking at some development deals. I think risk adjusted. You need to be super thoughtful about development. We're glad given circumstances. We have a small development platform. We only have about 200 million dollars of funding that we need to do yet to finish the 3 assets that are still in flight.

But we're looking at some development deals and in some locations we think have particularly good Dynamics. You may see us. Start a few of those. So those are the Big 3 that we're kind of balancing out. I don't know that. Like, if there's anything you'd add. Yeah, I'd just say we supplement that by investing in our existing portfolio. We have Renovations going on throughout the country and then specific to California. We're participating in the accessory. Dwelling unit program adus um, throughout throughout that.

State of the portfolio. Fresh that way.

Great, thanks for the time.

We'll go next to Alex, Kim with zelman and Associates.

Hey guys, thanks for taking my question here. Um, with the forecasted deceleration of rent growth for the back, half of the year. Just curious what factors do you most closely tracking to determine upside or downside to your assumptions? And how does that compare to historical norms?

Hey Alex Michael. So I mean I think there's a lot of things that we're watching all the time and I think we don't have we have, you know, we have multiple levers that we're looking at, which is the goal is to maximize cash flow Revenue growth for the shareholders. So right now, as I think about rent, seasonality, I'm looking at just pricing trends. Like, what is normal rent, seasonality look like, how do rent sequentially decelerate, you know, as you leave the peak leasing season into the shoulder period? How are we doing with retention? What are we seeing here in feeling from? You know, new prospects showing up at our properties. Are they taking longer to make decisions, Etc? So, there's a lot of factors that go into that, that kind of what I would say, Force us to lean 1 direction, or the other favor rate favor holding on to rate, favor occupancy, Etc. And you know, there's

There's No 1 lever that I would say, has more weight than the other right now, we're looking at all of these combined, to get a feel as to, where do we sit relative to expectations for where we are in the season?

Kind of combining that with the deceleration and job growth, um, any concerns that, you know, the level of demand isn't sustainable. Or is it the opposite way around where you're able to push, uh, rents in a, in an environment where the macroeconomy is, is a little weaker and maybe others, take a little softer stance.

Yeah, thanks for that question. I think that's a market by market determination about how stressed some of these folks are are are markets particularly out west in San Francisco Seattle. We've talked about people getting uh, our average resident getting 30% cumulative increases in compensation since 2019, whereas rents are flat now slightly higher but basically flat to 2019 and so there's a lot of room there. So I think I mean people obviously need jobs but these are highly skilled individuals. Uh, that generally are our residents and um, my expectation is that there's plenty of room to push in our markets or not seeing any stress from our, um, from our customer. And, you know, again, if the job machine slows down, I think we'll feel it, like all owners and, you know, of rental housing will feel it, but I think a lot less than many others given where our assets are. And that our customer honestly is at disproportionate compensation increase relative to the rent level increases.

Got it. Thanks for the details.

We'll go next to Jamie Feldman with Wells, Fargo.

All right. Great. Thanks for taking the question.

So I guess to go back to your comments on potentially starting new developments. Can you talk about what markets? Look, interesting. Is it more the expansion markets, your your legacy markets and then how do you think about the decision to do it through a JV or on balance sheet? And what would your targeted yields or returns look like

Yeah, hey Jamie, it's Alec. Well, we're really looking to do his balance out our development pipeline in both places, like Suburban, Boston, and Suburban, Seattle, where we have developments going on right now with um, targeted locations within the expansion market. So a little of both is the answer that we're pursuing right now and and we have some um,

Opportunities in the pipeline that we're working on. Um, and then in terms of yields, um, you know, like everyone else, we're chasing a 6% yield on current rents and current costs. And that, you know, if you're honest about rents, um, you know, you can work a deal hard, but it's hard to get to that 6%. So that's why the opportunities are scarce. It's not for a lack of trying on our part. We do think it'll be a good opportunity to deliver in a couple of years, um, but to get those numbers to really underwrite and pay you for that risk is a challenge right now.

And just to talk a little bit more about development, balance sheet versus JV, I mean, we do do balance sheet deals. I mean, we have, uh, a deal that is a phase deal. We knock down a couple of buildings in the San Francisco Bay area of an older property and put in some newer products, a couple miles from the Apple headquarters. It's just killing it. It's doing very, very well. So we're you know able to do on balance sheet stuff but we like using joint venture Partners these are large National developers by and large we can trust to complete on time and on budget and we're leveraging their overhead instead of adding to our own and that leaves us like just more internal flexibility, we can be much more agnostic between doing development or just buying or doing neither. So um, we like the JV format as a way to sort of Leverage our teams here.

Okay, it's an interesting point. How do you think about the...

Cost of doing that, I assume you get a lower yield.

And return on Capital.

Well Jamie it's all like. Yeah, yeah. We're balancing up not having to have all the overhead, um, that you need to to have do all the things wholly owned, um, with the fact that you might have to pay a promote, if a deal does well, and hopefully we hope the deal as well but when they don't, we don't have to pay that promote. So it balances out pretty well for us. Um, in terms of both the limiting the overhead but also limiting how many deals we feel like compelled to do because we've already got money into them because we're offering

Often entering the deal when it's already entitled and ready to go.

Yeah, our development overhead is a matter of record, less than $4 million a year. So it's just not that significant, and that's a real benefit to us compared to a lot of other folks.

Yeah, that's a good point. And then you had mentioned earlier accelerating the rollout of AI across the platform. Can you talk about, you know, as we think about the future, just incremental costs to do that?

What do you think the impact could be on margins and revenue upside?

Is it something we can be modeling, or is it more just internally that you get the benefit?

Me, this is Michael I mean we laid out some of this through the investor day. So I think when you think about the Innovation initiatives that we have here you know right now as we think about deploying AI within our portfolio, we're very focused on enhancing the customer experience at the same time, optimizing the operations or looking for operating efficiencies, you know, in terms of the actual lift for sustained result, I think that comes over time as we continue to deploy these types of applications, but the first couple of, uh, use cases that we're after, are really focused about streamlining and creating a seamless customer experience. At the same time of driving, some of the overhead kind of, um, efficiencies through the portfolio. And Jamie, it's Mark. If I could just expand on that because Michael's doing such a good job with all types of Technology including AI on the Ops side. But what you're going to see from us is just this expansion of Technology.

And the use of technology to make better decisions, to move faster, and lower costs in areas away from operations, most importantly, in capital allocation. We've got a lot of initiatives going on, using more sophisticated business intelligence tools and using more data to make better capital allocation decisions. Over time, we have a lot of really cool, inflight projects that we think will help both in the legal department and the HR department in finance to just be more productive generally and to give our people internally.

A better experience, but also to be more efficient. So I think it's not just AI; it's technology in general, and it's not just operations. It's all manner of things here. And we all have goals—everyone in the company, at the top of the house—to sort of use technology to be more efficient, to make better quality decisions. And that includes, of course, Michael's amazing operating machine, but also includes capital allocation and all the back-office stuff as well.

Do you think that leads to GNA savings as well?

I think it's going to retarget the rate of growth of overhead over time.

I think these folks are very expensive people, and you may see us go up before we go down in some regards. But I expect that over time, we will have a slower rate of growth of our overhead functions because we'll use technology in places where it can make us more efficient.

Okay, interesting. Thank you very much for the thoughts.

We'll go next to Rich, High Tower, with Barkley's.

Hey, good morning, guys. Thanks for, uh, squeezing me in here. Um, and congrats again to Alec, Bob, and Brett as well. Um,

So, going back to the the changing composition of the same store pool, um, for next year, which I know we've talked about on prior calls, but is there a way to sort of help quantify? You know, if you, let's say, if you had included those, same Assets in the pool this year, what that would have meant for same store and then, you know, conversely what that comp looks like for next year, is there a way to think about that. Um, for our modeling purposes

Yeah. Hey Richard, it's Bob, um, I think the best way to think about it is to um I there in the expansion markets and if you actually look at the sequential same store set, um, this the many of them, or most of them are included in the sequential, same store set. So we have, you'll notice, if you look on 1 of the same store Pages, we have around 81,000 units that are in sequential. And that, of course, would include basically everything that we would have acquired. That is not yet got into the portfolio except for the transaction that happened in the quarter, right? Um, or anything in the first quarter. Um, so that's probably the best indicator of like absolute number of units. Um, given where the expansion markets are today. Um, it is modestly dilutive right? In 2020, um, in 2025 if you would have otherwise put them into the same store set. Um, that is of course, consistent with what we underwrote and they're performing with what we underwrote. But we would think that as we roll into 2026, you will see a good, a good framework or a good, um, upside potential.

Supply comes down in these markets, and you see growth coming out of the expansion markets.

Okay, that that is helpful. Um, and just a just to be clear. And again, I know we've covered this before but the the same store pool overall recomposed on a quarterly basis. Is that how you guys do it?

Yeah. So we have actually, um, to, to, we have 3 sets, right? So you have a full year in order, basically, in order to own, in order to be in the same store. We have 3 sets of same stores, but in order to be in the same store, you need to have been owned for the full period of the comparable period. So, for the full year same store set, you'll see we have 75,000 some odd units. That means that we fully owned them in 2024 and fully owned them in 2025.

In the quarterly you just need to have been owned um for the full period and stabilized. I should note um in the full period for the corresponding quarter. So we had to own you in Q2, for instance, Q2 compared to Q2 um of the prior year and in the sequential, which is always the largest when you're doing trans. Um, Acquisitions the sequential set is always the largest because we had to own you in q1 of 2025 and in Q2 of 2025 to be included. So we have 3 sets um, to, uh, to keep life interesting and just to give a little more point on that and and Bob's still our CFO. So we can correct me as an old CFO. If I get it wrong, we're going to add about 4,000 units to the annual same store set. And those will be as you guessed. Rich. Predominantly almost entire

Entirely in those expansion markets, they will generally, because of their locations, improve our results quarter over quarter. However, because those markets are slower growth than our legacy markets, they're going to slow down the company's total growth rate, which is what Bob was implying and is beginning to answer. But I think you'll see some numbers that are less volatile and...

And Dallas when you add in all these Suburban Acquisitions was just tended to be the things we acquired in our second or third year of being back. In those markets, as opposed to being the initial properties, we acquired, that makes sense.

Uh it does. Yeah and if I if I'm if I'm still confused I'll follow up um offline but I appreciate your response here.

Well, the next 2 Julian blue in with Goldman Sachs.

All right, thank you. Uh, thank you for the question. Um, just on DC and Boston—those are helpful comments earlier on the sort of early signs of softness you're seeing in those markets. I think what's just been striking is just how solid the blends in those markets were in the second quarter. But should we read into your comments around prioritizing occupancy that you think the blends could actually decelerate more than seasonal norms in the back half of the year in those markets?

Uh Hey Julian. It's Michael. No, I don't think I would read in today yet. I think both DC and Boston continue to be the headline risk markets and we need to just be paying attention to it. We saw a little bit of deceleration in that the end of the peak leasing season in DC Boston's kind of been steady. Um, you know, so I think that does warrant us leaning in towards that occupancy play. But again, you're, you're going into the shoulder period, they're pretty pronounced seasonal, markets to begin with. And I think just normal deceleration probably allows us to maintain that lean towards occupancy.

Okay. Great. That's all from me. Thanks.

We'll go next to David Seagal with Green Street.

Hi! Thank you. Maybe you're just going back to your comments about the transaction market. It sounds like the expectation of blended pressure leading to more activity has not played out, and I'm curious if you have any thoughts on why that is. Is it just going to be delaying the activity until next year or until rents recover, or is it just not going to happen at all?

Hey David, it's Alec. Um yeah you're you're right that was an anticipation. Going into the year that there would be more lenders. Just eager to get their money back and what we're hearing from our conversations is that in fact given the slowdown in new business that the lenders actually want to keep money engaged in the multifamily sector. So, are much more willing to extend than we had anticipated and frankly and I think they thought they were going to anticipate going into the year, so, um, you know, that pressure is still continues to build in the longer run because so many new properties are delivering, um, particularly in these expansion markets. So we do think we'll see more opportunity and, you know, we're poised to take advantage of that.

And then, with regard to your CapEx guidance, it was reduced a little bit. I'm just curious what strides in that would be and if there would be any associated impact on revenue growth?

Hey David, it's Alec. It's really just some projects taking a little longer than we thought they would. Um, and some of the renovations of fewer units. Um, but things we will get to in the next 12 months or so. And, one of them is a conversion of some office space in Boston to residential that just has gotten tied up a little bit with the city, but we expect that to happen as well.

Great. Thank you.

At this time, there are no further questions. I'll turn the call back to Mark for any additional or closing remarks.

Thanks, Jennifer. Thank you all for your time and interest in Equity Residential today. We'll see you on the fall conference circuit. Thank you.

This does conclude today's conference. We thank you for your participation. Everyone else has left.