Avalonbay Communities Q4 2025 AvalonBay Communities Inc Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 AvalonBay Communities Inc Earnings Call
First quarter 2025 earnings conference call at this time, all participants are in a listen only mode.
Following the 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 you May press star two.
If you are using a speaker phone please lift the handset before asking your question.
We ask that you refrain from typing and have yourself phones turned off during the question and answer session.
Your host for today's conference call is Matthew <unk> Senior director of Investor Relations. Mr. <unk>, you May begin your conference call.
Thank you operator, and welcome to Avalonbay communities fourth 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 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.
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 investors that Avalon Bay Dot Com and we encourage you to refer to this information during the review of our operating results and financial performance.
Speaker #1: Good afternoon, ladies and gentlemen, and welcome to AvalonBay Communities' 4th Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Speaker #1: Following the 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 1.
And with that I will.
I'll turn the call over to <unk>, CEO and president of Avalonbay communities for his remarks Ben.
Speaker #1: If your question has been answered, or you wish to remove yourself from the queue, you may press star 2. If you are using a speakerphone, please lift the handset before asking your question.
Thank you, Matt and good afternoon, everyone joined.
Joining today by Kevin O'shea, our Chief Financial Officer, Sean Breslin, our Chief operating Officer, and Matt Berenbaum, Our Chief investment Officer.
Speaker #1: We ask that you refrain from typing and have your cell phones turned off during the question-and-answer session. Your host for today's conference call is Matthew Grover, Senior Director of Investor Relations.
Looking back on 2025, I want to begin by thanking our nearly 3000 associates across avalonbay for their dedication and commitment.
Speaker #1: Mr. Grover, you may begin your conference.
Speaker #1: call. Thank you,
It was a year that required us to be nimble and disciplined and highly focused on execution. Our teams rose to that challenge consistently demonstrating our core values of integrity continuous improvement and a genuine spirit of caring.
Speaker #2: Operator: Welcome to AvalonBay Communities' Fourth Quarter 2025 Earnings Conference Call. Before we begin, please note that forward-looking statements may be made during this discussion.
Speaker #2: There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There is a discussion of these risks and uncertainties in yesterday afternoon's press release, as well as in the company's Form 10-K and Form 10-Q filed with the SEC.
As summarized on slide four our operating results in 2025 reflect the quality of our portfolio. The proactive steps, we've taken to optimize our portfolio's growth and the strength of our operating teams.
Keeping existing residents satisfied and engage was a clear priority and that focus showed up in our results with high levels of retention and strong renewal acceptance rates, serving as a ballast to overall revenue growth of two 1% during the year.
Speaker #2: 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.
Speaker #2: The attachment is regarding Officer and Matt Officer. Looking back on 2025, I want to begin Birenbaum, our Chief Investment by thanking our nearly 3,000 associates across AVALONBAY for their dedication and commitment.
In fact, our turnover rate of 41% in 2025 was the lowest in our company's history.
My particular, thanks to our operating teams for delivering a near all time high mid lease net promoter score of 34, one of the metrics, we utilize to measure customer engagement and with clear connections to retention and renewal outcomes.
Our regional development construction and operating teams were also successful last year in sourcing attractive development opportunities using our strategic capabilities and balance sheet strength when many competitors were on the sidelines.
All in we started $1 $65 billion of projects with a projected initial stabilized yield of six 2%.
Speaker #2: It was a year that required us to be nimble, disciplined, and highly focused on execution. Our teams rose to that challenge, consistently demonstrating our core values of integrity, continuous improvement, and a genuine spirit of caring.
Funded with capital that we previously raised at a cost of roughly 5%. This investment activity sets the foundation for strong earnings and value creation in the years ahead.
Speaker #2: As summarized on slide 4, our operating results in 2025 reflect the quality of our portfolio, the proactive steps we've taken to optimize our portfolio's growth, and the strength of our operating teams.
We have one of the strongest balance sheets in the industry and also pride ourselves and remaining nimble in capital sourcing and capital allocation.
Among our peer set where we're the only one to raise equity capital in size in 2024, having raised almost $900 million of equity on a forward basis at an implied initial cost of 5% and.
And at the end of 2025, we are one of the only to repurchase shares in size, having acquired almost $490 million at an average price of $182 per share and an implied yield north of 6%.
These repurchases were funded with incremental debt and the sale of lower growth assets, which in turn improves our long time growth long term growth profile.
In total during 2025, we raised $2 $4 billion of capital at an initial cost of 5% positioning us to continue investing in our existing portfolio and in new development in 2026.
Which transitions us to this year with our key themes for 2026 summarized on slide five.
First on the operating side, while we expect fundamentals to improve as the year progresses, we are forecasting modest revenue growth of one 4% given the current job and demand backdrop.
Given the supply backdrop, particularly in our established regions, we will not need much incremental demand to facilitate stronger revenue growth than assumed in our budget.
And irrespective of the macro environment, we will continue to utilize our scale, particularly our investments in technology and centralized services to drive incremental growth from our existing portfolio.
We're now 60% of our way towards our target of $80 million of annual incremental NOI from our operating initiatives with an incremental $7 million of NOI slated for this year.
In terms of development earnings we will have a meaningful uplift in development NOI as projects lease up during 2026 with earnings partially offset by the funding cost from the $1 $65 billion of profit a little belt profitable developments, we started in 2025.
Kevin and Matt will further detail this dynamic.
In terms of new starts we are restraining activity to $800 million consisting.
Consisting of seven projects with an average development yield of between six 5% and 7%, providing a strong spread to both underlying cap rates and our cost of funding.
And finally, our board approved an increase of our quarterly dividend to $1 78 per share, which after the one 7% increase continues to business position us with one of the more conservative payout ratios in the industry.
Delving, a little deeper into the setup for 2026, our outlook assumes a job growth environment that is slightly stronger than 2025, but still relatively modest.
As shown on slide six nave is currently forecasting 750000 net new jobs in 2026.
As the year progresses enhance economic and policy certainty the benefits from recent tax legislation and the potential for further fed easing are among the catalysts that could translate into higher levels of business investment improved consumer confidence and stronger hiring in our key resident industries.
Turning to slide seven demand for apartments will also be supported by rent to income ratios, which are now below 2020 levels in our established regions given that incomes have grown faster than apartment rents over the past few years.
Demand will also continue to benefit from the relative attractiveness of renting versus home ownership, which is particularly acute in our established regions, where it is over $2000 per month more expensive to own a home given home price levels mortgage rates and increases in other cost of homeownership, such as insurance and property taxes.
And then there is the supply outlook with supply in our established regions expected at only 80 basis points of stock. This year levels, we have not seen since the period coming out of the GSC.
And given the challenges of getting entitlements and how lengthy the process is in our established regions. We expect this supply backdrop to serve as a tailwind for us for the foreseeable future.
Balancing these series of dynamics slides nine and 10 provide our outlook for 2026, we ended the year with a high quality portfolio concentrated in suburban coasts with historically low levels of supply or.
A differentiated development platform and one of the strongest balance sheets in the REIT sector.
And while our guidance assumes modest growth in 2026, we are well positioned to generate meaningful earnings and value creation as operating fundamentals improve and development earnings ramp into 2027.
Sean will now walk through our operating outlook in more detail.
Alright, Thanks, Ben moving to slide 11, the primary driver of our expected one 4% same store revenue growth is an increase in lease rates with incremental contributions from other rental revenue and underlying bad debt.
We're expecting year over year revenue growth in the second half of the year to exceed what we produced in the first half with slightly better job growth and improved mix of jobs.
Cumulative effect of lower supply and softer comps support and better rate and revenue growth.
Our forecast reflects like term effective rent change of 2% for the full year of 2026.
With the first half expected to average in the low 1% range in the second half improving into the mid twos.
In terms of recent leasing spreads while Q4 performance was modestly below our expectations. It improved in January compared to both November and December.
We expect continued sequential improvement in February and March renewal offers for those months were delivered in the four to four 5% range.
For other rental revenue, we're continuing to drive incremental growth from our various operating initiatives.
But it will be partially offset by lower income due to select legislative actions in 2025.
Excluding those headwinds other rental revenue growth would have been closer to 5% versus the roughly three 5% reflected in our outlook.
Turning to slide 12 to address regional trends revenue growth of roughly 2% in New York, New Jersey is primarily driven by healthy contributions from New York City, and Westchester, which are projected to be in the mid to high 3% range.
Demand in Boston has been impacted by job losses in the back half of 2025.
Our outlook reflects a projected year over year decline in occupancy of approximately 40 basis points. The majority of which is expected to occur in the first half of 2026 given.
Given our very strong occupancy level in the first half of 2025.
At another 40 basis points from a projected year over year decline of rent relief payments.
New apartment deliveries are projected to decline by about 30% to 4000 units in the market.
Which will support better revenue growth when demand picks up.
And the mid Atlantic job losses in the back half of 2025 are the highest of our established regions.
Our outlook reflects just under 1% revenue growth for the year with negative net effective lease rate growth during 2026, offset by a roughly 20 basis point improvement in occupancy.
Approximately 30 basis point reduction in underlying bad debt.
And 30 basis point contribution from other rental revenue growth.
New apartment deliveries in the market are projected to decline by roughly 60% to 5000 units.
So the outlook turn more positive in the second half of 2026, if we see an improvement in job growth.
Moving to the West Northern California is projected to produce mid 3% revenue growth <unk>.
Supported by built in lease rate growth of 1%.
Relatively stable occupancy at approximately 96% and continued healthy rate growth throughout 2026.
New Department of apartment deliveries are also projected to decline by about 60% to 3000 units in that region.
And Seattle total employment was flat for the last six months of 2025.
Our outlook reflects modest net effective rate growth throughout 2026.
And approximately 20 basis point reduction in occupancy and a 40 basis point contribution from growth and other rental revenue.
New unit deliveries are projected to decline by about 50% to 5000 units, which will support improved performance as we move through the year.
And in Southern California, our outlook reflects revenue growth in the mid 1% range driven by stable occupancy and approximately 20 basis point contribution from lower bad debt driven primarily by law.
And the incremental effective rate growth projected primarily in Orange County, and San Diego.
Unit deliveries in the region are projected to decline by about 40% to 11000 units with the most meaningful declines projected to occur in the la market.
And lastly in our expansion regions Southeast, Florida will remain the strongest region with revenue growth of roughly one 5%.
Denver suffered from the combination of zero net job growth during 2025, and the delivery of approximately 16000 new apartments.
The outlook for 'twenty six reflects the challenging environment with modest job growth and another 9000, new units being delivered into the market.
Built in lease rate growth is minus 1% and rents are projected to continue to decline throughout the year.
And then moving to still look for operating expense growth on slide 13.
Sean Breslin: Revenue growth, supported by built-in lease rate growth of 1%, relatively stable occupancy at approximately 96%, and continued healthy rate growth throughout 2026. New apartment deliveries are also projected to decline by about 60% to 3,000 units in that region. In Seattle, total employment was flat for the last 6 months of 2025. Our outlook reflects modest net effective rate growth throughout 2026, an approximately 20 basis point reduction in occupancy, and a 40 basis points contribution from growth in other rental revenue. New unit deliveries are projected to decline by about 50% to 5,000 units, which will support improved performance as we move through the year.
Sean J. Breslin: Revenue growth, supported by built-in lease rate growth of 1%, relatively stable occupancy at approximately 96%, and continued healthy rate growth throughout 2026. New apartment deliveries are also projected to decline by about 60% to 3,000 units in that region. In Seattle, total employment was flat for the last 6 months of 2025. Our outlook reflects modest net effective rate growth throughout 2026, an approximately 20 basis point reduction in occupancy, and a 40 basis points contribution from growth in other rental revenue. New unit deliveries are projected to decline by about 50% to 5,000 units, which will support improved performance as we move through the year.
<unk>, we expect same store operating expense growth of three 8%, a 130 basis points above our organic growth rate of two 5%.
In terms of the items projected to drive growth higher in 2026.
Relatively stable occupancy at approximately 96% and continued healthy rate growth throughout 2026.
The phase out of property tax abatement programs will add roughly 70 basis points.
New department deliveries are also projected to decline by about 60% to 3,000 units in that region.
In addition, we settled a very favorable property tax appeal in Q4, 2025, which established a much lower assessment and led to a meaningful refund.
In Seattle, total employment was flat for the last six months of 2025.
Our outlook reflects modest, net effective rate growth throughout 2026.
But it is creating a 50 basis point headwind for 2026.
In addition, the net impact of operating initiatives is contributing about 10 basis points as the added costs from our Avalon connect offering is mostly offset by incremental labor efficiencies.
And approximately a 20 basis point reduction in occupancy and a 40 basis point contribution from growth and other rental revenue.
New unit deliveries are projected to decline by about 50% to 5,000 units, which will support improved performance as we move through the year.
Sean Breslin: In Southern California, our outlook reflects revenue growth in the mid 1% range, driven by stable occupancy and approximately 20 basis points contribution from lower bad debt, driven primarily by LA, and incremental effective rate growth projected primarily in Orange County and San Diego. Unit deliveries in the region are projected to decline by about 40% to 11,000 units, with the most meaningful declines projected to occur in the LA market. Lastly, in our expansion region, Southeast Florida will remain the strongest region, with revenue growth of roughly 1.5%. Denver suffered from the combination of zero net job growth during 2025 and the delivery of approximately 16,000 new apartments. The outlook for 2026 reflects a challenging environment, with modest job growth and another 9,000 new units being delivered into the market.
Sean J. Breslin: In Southern California, our outlook reflects revenue growth in the mid 1% range, driven by stable occupancy and approximately 20 basis points contribution from lower bad debt, driven primarily by LA, and incremental effective rate growth projected primarily in Orange County and San Diego. Unit deliveries in the region are projected to decline by about 40% to 11,000 units, with the most meaningful declines projected to occur in the LA market. Lastly, in our expansion region, Southeast Florida will remain the strongest region, with revenue growth of roughly 1.5%. Denver suffered from the combination of zero net job growth during 2025 and the delivery of approximately 16,000 new apartments. The outlook for 2026 reflects a challenging environment, with modest job growth and another 9,000 new units being delivered into the market.
And then in terms of the quarterly cadence of Opex growth, we're expecting heavier growth in the first half of the year before it moderates in the second half driven primarily by utilities, including the impact of credits received in the first half of 2025.
And in Southern California, our outlook reflects revenue growth in the mid-1% range, driven by stable occupancy and approximately a 20 basis point contribution from lower bad debt.
Driven primarily by la.
Benefits cost and maintenance related costs, given our lighter spend in the first half of 2025.
And the incremental effective rate growth projected primarily in Orange County and San Diego.
Now I'll turn it to Kevin to go deeper into our earnings outlook for the year.
Unit deliveries in the region are projected to decline by about 40% to 11,000 units.
Thanks, Sean.
Turning to slide 14, we show the building blocks of our 2026 core <unk> per share.
With the most meaningful declines projected to occur in the LA market.
For internal growth our guidance reflects a projected <unk> increase from same store NOI, partially offset by a <unk> <unk> decrease from overhead management fees and JV income.
And lastly, in our expansion region, Southeast Florida will remain the strongest region with revenue growth of roughly one and a half percent.
For external growth there are a few components.
Denver suffered from the combination of zero net job growth during 2025 and the delivery of approximately 16,000 new apartments.
We expect a <unk> <unk> increase from net development earnings, which ill discuss further on the next slide.
Sean Breslin: Built-in lease rate growth is -1%, and rents are projected to continue to decline throughout the year. Then moving to the outlook for operating expense growth on Slide 13, we expect same-store operating expense growth of 3.8%, 130 basis points above our organic growth rate of 2.5%. In terms of the items projected to drive growth higher in 2026, the phase-out of property tax abatement programs will add roughly 70 basis points. In addition, we settled a very favorable property tax appeal in Q4 2025, which established a much lower assessment and led to a meaningful refund, but is creating a 50 basis point headwind for 2026.
Sean J. Breslin: Built-in lease rate growth is -1%, and rents are projected to continue to decline throughout the year. Then moving to the outlook for operating expense growth on Slide 13, we expect same-store operating expense growth of 3.8%, 130 basis points above our organic growth rate of 2.5%. In terms of the items projected to drive growth higher in 2026, the phase-out of property tax abatement programs will add roughly 70 basis points. In addition, we settled a very favorable property tax appeal in Q4 2025, which established a much lower assessment and led to a meaningful refund, but is creating a 50 basis point headwind for 2026.
The outlook for '26 reflects the challenging environment, with modest job growth and another 9,000 new units being delivered into the market.
As well as a <unk> <unk> increase from our structured investment program in 2025 share repurchases, which consists of <unk> from our CIP program and <unk> from our recent buyback activity in 2025.
Built-in lease rate growth is minus 1%, and rents are projected to continue to decline throughout the year.
Moving to the outlook for operating and expense growth on this slide.
These sources of external earnings growth are offset by a <unk> <unk> decrease from refinancing activity across 2025 and 2026.
We expect same store, upper, and expense growth of 3.8%, which is 130 basis points above our organic growth rate of 2.5%.
And a 10 cent decrease from transaction activity.
in terms of the items projected to drive growth higher in 2026,
Here I would emphasize that our recent elevated transaction activity and associated impact on earnings.
The phase-out of property tax abatement programs will add roughly 70 basis points.
Reflects our having acted on some unique opportunities last year, including the timely sale of a portfolio of assets in a challenged submarket of Washington D C.
In addition, we settled a very favorable property tax appeal in Q4 2025.
Which established a much lower assessment and led to a meaningful refund.
An acquisition of a tailored portfolio of communities at a very attractive cost basis in Texas.
Sean Breslin: In addition, the net impact of operating initiatives is contributing about 10 basis points, as the added cost from our Avalon Connect offering is mostly offset by incremental labor efficiencies. And then in terms of the quarterly cadence of OpEx growth, we're expecting heavier growth in the first half of the year before it moderates in the second half, driven primarily by utilities, including the impact of credits received in the first half of 2025, benefits costs, and maintenance-related costs, given our lighter spend in the first half of 2025. Now I'll turn it to Kevin to go deeper into our earnings outlook for the year.
Sean J. Breslin: In addition, the net impact of operating initiatives is contributing about 10 basis points, as the added cost from our Avalon Connect offering is mostly offset by incremental labor efficiencies. And then in terms of the quarterly cadence of OpEx growth, we're expecting heavier growth in the first half of the year before it moderates in the second half, driven primarily by utilities, including the impact of credits received in the first half of 2025, benefits costs, and maintenance-related costs, given our lighter spend in the first half of 2025. Now I'll turn it to Kevin to go deeper into our earnings outlook for the year.
But it's creating a 50-basis-point headwind for 2026.
We don't execute meaningful trades of that nature very frequently so we do take advantage of them when opportunities arise.
Of this 10 and earnings headwinds from transaction activity <unk> is timing related driven primarily by the impact of selling assets in late 2025 and in early 2026.
In addition, the net impact of operating initiatives is contributing about 10 basis points, as the added cost from our AvalonConnect offering is mostly offset by incremental labor efficiencies.
And then, in terms of the quarterly cadence of Opex growth, we're expecting heavier growth in the first half of the year before it moderates in the second half.
And the remaining <unk> is the result of selling slightly higher cap rate assets, including in DC in order to better position the portfolio for stronger growth over time.
driven primarily by utilities, including the impact of credits received in the first half of 2020.
Benefits costs and maintenance-related costs, given our lighter spend in the first half of 2025.
Turning to slide 15 development is expected to contribute 10 or 90 basis points to earnings growth this year.
Now, I'll turn it to Kevin to go deeper into our earnings outlook for the year.
Kevin O'Shea: Thanks, Sean. Turning to slide 14, we show the building blocks of our 2026 Core FFO per share. For internal growth, our guidance reflects a projected 4 cent increase from Same-Store NOI, partially offset by a 3 cent decrease from overhead management fees and JV income. For external growth, there are a few components. We expect a 10 cent increase from net development earnings, which I'll discuss further on the next slide, as well as a 7 cent increase from our Structured Investment Program and 2025 share repurchases, which consists of 2 cents from our SIP program and 5 cents from our recent buyback activity in 2025. These sources of external earnings growth are offset by a 7 cent decrease from refinancing activity across 2025 and 2026, and a 10 cent decrease from transaction activity.
Kevin O'Shea: Thanks, Sean. Turning to slide 14, we show the building blocks of our 2026 Core FFO per share. For internal growth, our guidance reflects a projected 4 cent increase from Same-Store NOI, partially offset by a 3 cent decrease from overhead management fees and JV income. For external growth, there are a few components. We expect a 10 cent increase from net development earnings, which I'll discuss further on the next slide, as well as a 7 cent increase from our Structured Investment Program and 2025 share repurchases, which consists of 2 cents from our SIP program and 5 cents from our recent buyback activity in 2025. These sources of external earnings growth are offset by a 7 cent decrease from refinancing activity across 2025 and 2026, and a 10 cent decrease from transaction activity.
Thanks, Sean.
This is lower than is typical for us and is driven by two factors.
Turning to slide 14, we show the building blocks of our 2026 core FFO per share.
First due to lower completions in ramping starts last year, the proportion of communities generating development NOI as a percentage of the total development underway is lower than normal.
For internal growth, our guidance reflects a projected FOR stabilized NOI increase from same store NOI, partially offset by a 3-cent decrease from overhead management fees and JV income.
This is reflected in 33 of expected earnings growth from our 2026 development communities as well as a handful of other communities that stabilized in 2025 and are now in our other stabilized bucket.
For external growth, there are a few components.
We expect a $0.10 increase from net development earnings, which I'll discuss further on the next slide.
And it compares to incremental funding costs of 33.
As well as a $0.07 increase from our structured investment program and 2025 share repurchases.
Attributable to the 26 communities that are under construction today as shown on attachment nine of our earnings release and eight communities that are expected to start construction in 2026.
Which consists of 2 cents from our SIP program and 5 cents from our recent buyback activity in 2025.
The second factor relates to a projected $340 million increase in construction in progress or CIP for 2025 to 2026.
These sources of external earnings growth are offset by a $0.07 decrease from refinancing activity across 2025 and 2026.
Kevin O'Shea: Here, I'd emphasize that our recent elevated transaction activity and associated impact on earnings reflects our having acted on some unique opportunities last year, including the timely sale of a portfolio of assets in a challenged submarket of Washington, DC, and acquisition of a tailored portfolio of communities at a very attractive cost basis in Texas. We don't execute meaningful trades of that nature very frequently, but we do take advantage of them when opportunities arise. Of this $0.10 in earnings headwinds from transaction activity, $0.06 is timing related, driven primarily by the impact of selling assets in late 2025 and in early 2026, and the remaining $0.04 is the result of selling slightly higher cap rate assets, including in DC, in order to better position the portfolio for stronger growth over time.
Kevin O'Shea: Here, I'd emphasize that our recent elevated transaction activity and associated impact on earnings reflects our having acted on some unique opportunities last year, including the timely sale of a portfolio of assets in a challenged submarket of Washington, DC, and acquisition of a tailored portfolio of communities at a very attractive cost basis in Texas. We don't execute meaningful trades of that nature very frequently, but we do take advantage of them when opportunities arise. Of this $0.10 in earnings headwinds from transaction activity, $0.06 is timing related, driven primarily by the impact of selling assets in late 2025 and in early 2026, and the remaining $0.04 is the result of selling slightly higher cap rate assets, including in DC, in order to better position the portfolio for stronger growth over time.
And a $0.10 decrease from transaction activity.
This temporarily dampens earnings growth in 2026, because our 5% initial funding cost exceeds our required capitalized interest rate under GAAP during construction, which is currently three 7%.
Therefore, we project a capitalized interest benefit of only <unk> <unk>. This year, which is a few cents lower than if our capitalized interest rate equaled our initial funding costs of 5%.
Here, I'd emphasize that our recent elevated transaction activity and associated impact on earnings reflects our having acted on some unique opportunities last year, including the timing of when we sold the portfolio of assets in the challenged submarket of Washington, DC.
And acquisition of a tailored portfolio of communities at a very attractive cost basis in Texas.
Nevertheless, our decision to lean into accretive development does set the stage for further outsized earnings growth in 2027 and beyond as current development projects are completed and stabilized at yields in excess of 6% and accretion steps up which Matt will discuss portfolio.
We don't execute meaningful trades of that nature very frequently, but we do take advantage of them when opportunities arise.
Of this $0.10 in earnings headwinds from transaction activity, $0.06 is timing-related, driven primarily by the impact of selling assets in late 2025 and early 2026.
Thanks, Kevin.
As shown in the chart on the left on Slide 16, we started $2 7 billion in new development over the past two years at yields of 110 to 130 basis points higher than the cost of capital source to fund those new projects and we expect an even wider spread on the $800 million and starts were planning for 2026.
And the remaining 4 cents is the result of selling slightly higher cap rate assets, including in D.C., in order to better position the portfolio for stronger growth over time.
Kevin O'Shea: Turning to Slide 15, development is expected to contribute $0.10 or 90 basis points to earnings growth this year. This is lower than is typical for us and is driven by two factors. First, due to lower completions and ramping starts last year, the proportion of communities generating development NOI as a percentage of the total development underway is lower than normal. This is reflected in $0.33 of expected earnings growth from our 2026 development communities, as well as a handful of other communities that stabilized in 2025 and are now in our other stabilized bucket. It compares to incremental funding costs of $0.33, attributable to the 26 communities that are under construction today, as shown on attachment 9 of our earnings release, and eight communities that are expected to start construction in 2026.
Kevin O'Shea: Turning to Slide 15, development is expected to contribute $0.10 or 90 basis points to earnings growth this year. This is lower than is typical for us and is driven by two factors. First, due to lower completions and ramping starts last year, the proportion of communities generating development NOI as a percentage of the total development underway is lower than normal. This is reflected in $0.33 of expected earnings growth from our 2026 development communities, as well as a handful of other communities that stabilized in 2025 and are now in our other stabilized bucket. It compares to incremental funding costs of $0.33, attributable to the 26 communities that are under construction today, as shown on attachment 9 of our earnings release, and eight communities that are expected to start construction in 2026.
Turning to slide 15, development is expected to contribute $0.10, or 90 basis points, to earnings growth this year.
This is lower than is typical for us and is driven by two factors.
Our development activity can vary substantially from year to year in response to market opportunities and capital markets conditions. The flow through of this activity to earnings can also vary in any given year. The majority of the earnings benefit is realized once all of those new apartments are occupied and as shown in the Middle chart. On this slide we are still early in this ramp up in 2010.
First, due to lower completions and ramping starts last year, the proportion of communities generating development—and why it's a percentage of the total development underway—is lower than normal.
<unk> six with occupancy is growing from 812 homes in 25 to roughly 30 175 homes this year.
This is reflected in $0.33 of expected earnings growth from our 2026 developing communities, as well as a handful of other communities that stabilized in 2025 and are now in our other stabilized bucket.
We expect that to grow further as still to over 4100 Occupancies in 2027.
As you can see on the chart on the right. This translates into $47 million of development NOI This year and an incremental $75 million of additional NOI next year.
Kevin O'Shea: The second factor relates to a projected $340 million increase in construction in progress, or CIP, from 2025 to 2026. This temporarily dampens earnings growth in 2026 because our 5% initial funding cost exceeds our required capitalized interest rate under GAAP during construction, which is currently 3.7%. Therefore, we project a capitalized interest benefit of only $0.10 this year, which is a few cents lower than if our capitalized interest rate equaled our initial funding cost of 5%. Nevertheless, our decision to lean into accreted development does set the stage for further outsized earnings growth in 2027 and beyond, as current pro-development projects are completed and stabilize at yields in excess of 6% and accretion steps up, which Matt will discuss more fully.
Kevin O'Shea: The second factor relates to a projected $340 million increase in construction in progress, or CIP, from 2025 to 2026. This temporarily dampens earnings growth in 2026 because our 5% initial funding cost exceeds our required capitalized interest rate under GAAP during construction, which is currently 3.7%. Therefore, we project a capitalized interest benefit of only $0.10 this year, which is a few cents lower than if our capitalized interest rate equaled our initial funding cost of 5%. Nevertheless, our decision to lean into accreted development does set the stage for further outsized earnings growth in 2027 and beyond, as current pro-development projects are completed and stabilize at yields in excess of 6% and accretion steps up, which Matt will discuss more fully.
And it compares to incremental funding costs of 33 cents, attributable to the 26 communities that are under construction today, as shown on Attachment 9 of our earnings release, and 8 communities that are expected to start construction in 2026.
Slide 17 takes a closer look at the expected 2026 lease up activity over 90% of which is coming from 11 communities, including eight where we have already achieved first occupancy and have active leasing underway.
The second factor relates to a projected $340 million increase in construction in progress, or CIP, for 2025 to 2026. This temporarily dampened earnings growth for 2026 because our 5% initial funding cost exceeds our required capitalized interest rate under GAAP during construction, which is currently 3.7%.
And then another three set to open in Q1 and Q2.
All of these assets are in suburban submarkets and more than half of the Occupancies are coming from the New York, New Jersey region in South, Florida, two of our most stable regions with above average expected same store performance for the year.
Therefore, we project a capitalized interest benefit of only $0.10 this year, which is a few cents lower than if our capitalized interest rate equaled our initial funding cost of 5%.
In addition to the earnings boost we expect from these communities and 26% and 27 were excited about their long term positioning for future cash flow growth as brand new assets built and designed by us to respond to future demographic trends.
Nevertheless, our decision to lean into a creative development does set the stage for further outsized earnings growth in 2027 and beyond.
Matt Birenbaum: Exactly. Thanks, Kevin. As shown in the chart on the left on slide 16, we started $2.7 billion in new development over the past two years, at yields 110 to 130 basis points higher than the cost of capital source to fund those new projects, and we expect an even wider spread on the $800 million in starts we're planning for 2026. Because our development activity can vary substantially from year to year in response to market opportunities and capital markets conditions, the flow-through of this activity to earnings can also vary in any given year. The majority of the earnings benefit is realized once all those new apartments are occupied.
Matthew H. Birenbaum: Exactly. Thanks, Kevin. As shown in the chart on the left on slide 16, we started $2.7 billion in new development over the past two years, at yields 110 to 130 basis points higher than the cost of capital source to fund those new projects, and we expect an even wider spread on the $800 million in starts we're planning for 2026. Because our development activity can vary substantially from year to year in response to market opportunities and capital markets conditions, the flow-through of this activity to earnings can also vary in any given year. The majority of the earnings benefit is realized once all those new apartments are occupied.
As current development projects are completed and stabilized, it yields in excess of 6%, and accretion steps up, which Matt will discuss more fully.
We are including more larger format homes designed for working from home and our unit mix, including eight communities with the BTR component and many feature excellent infill locations walkable to nearby retail.
And with that we're ready to open up the line for questions.
Thank you.
We'll now be conducting a question and answer session. We ask that you kindly limit yourselves with two questions only as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Exactly. Thanks. Kevin, as shown in the chart on the left on slide 16, we started $2.7 billion in new development over the past two years at yields 110 to 130 basis points higher than the cost of the capital source to fund those new projects, and we expect an even wider spread on the $800 million in starts we're planning for 2026.
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Matt Birenbaum: As shown in the middle chart on this slide, we are still early in this ramp up in 2026, with occupancies growing from 1,812 homes in 2025 to roughly 3,175 homes this year. We expect that to grow further still to over 4,100 occupancies in 2027. As you can see on the chart on the right, this translates into $47 million of development NOI this year, and an incremental $75 million of additional NOI next year. Slide 17 takes a closer look at the expected 2026 lease-up activity, over 90% of which is coming from 11 communities, including eight where we have already achieved first occupancy and have active leasing underway, and another three set to open in Q1 or Q2.
Matthew H. Birenbaum: As shown in the middle chart on this slide, we are still early in this ramp up in 2026, with occupancies growing from 1,812 homes in 2025 to roughly 3,175 homes this year. We expect that to grow further still to over 4,100 occupancies in 2027. As you can see on the chart on the right, this translates into $47 million of development NOI this year, and an incremental $75 million of additional NOI next year. Slide 17 takes a closer look at the expected 2026 lease-up activity, over 90% of which is coming from 11 communities, including eight where we have already achieved first occupancy and have active leasing underway, and another three set to open in Q1 or Q2.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Eric Wolfe with Citi. You May proceed with your question.
Because our development activity can vary substantially from year to year in response to market opportunities and capital markets conditions, the flow-through of this activity to earnings can also vary in any given year. The majority of the earnings benefit is realized once all those new apartments are occupied, and as shown in the middle chart on this slide, we are still early in this ramp up in 2026, with occupancies growing from 1,812 homes in '25 to roughly 3,175 homes this year.
Hey, good afternoon, thanks for taking my questions.
We expect that to grow further still to over 4,100 occupancies in 2027.
You mentioned that renewals are going out in the four to four five range I guess first could you talk about whether you expect to achieve four to $4.
5% on these renewals or the take rate will be lower and then second what changed between now and the two 5% you achieved on renewals in January just feels like there's been.
As you can see on the chart on the right, this translates into $47 million of development NOI this year, and an incremental $75 million of additional NOI next year.
And a bit of a jump over the last month or two.
Wondering what caused that.
Yes, Eric.
Talk a little bit about how we see the rent change forecast playing out throughout the year.
Matt Birenbaum: All of these assets are in suburban submarkets, and more than half of the occupancies are coming from the New York, New Jersey region and South Florida, two of our most stable regions with above average expected same-store performance for the year. In addition to the earnings boost we expect from these communities in 2026 and 2027, we're excited about their long-term positioning for future cash flow growth, as brand new assets built and designed by us to respond to future demographic trends. We are including more larger format homes designed for working from home in our unit mix, including eight communities with a BTR component, and many feature excellent infill locations walkable to nearby retail. With that, we're ready to open up the line for questions.
Matthew H. Birenbaum: All of these assets are in suburban submarkets, and more than half of the occupancies are coming from the New York, New Jersey region and South Florida, two of our most stable regions with above average expected same-store performance for the year. In addition to the earnings boost we expect from these communities in 2026 and 2027, we're excited about their long-term positioning for future cash flow growth, as brand new assets built and designed by us to respond to future demographic trends. We are including more larger format homes designed for working from home in our unit mix, including eight communities with a BTR component, and many feature excellent infill locations walkable to nearby retail. With that, we're ready to open up the line for questions.
Slide 17 takes a closer look at the expected 2026 lease-up activity, over 90% of which is coming from 11 communities, including 8 where we have already achieved first occupancy and have active leasing underway, and another 3 set to open in Q1 or Q2.
But to your specific question.
What I indicated in my prepared remarks is the renewal offers for February March were out in the four to four 5% range as you probably know they always settle if something less than that historical range. The settlement is probably 125 basis points of dilution or something like that depending on the market environment.
All of these assets are in suburban sub-markets, and more than half of the occupancies are coming from the New York, New Jersey region and South Florida—two of our most stable regions, with above average expected same-store performance for the year.
In addition to the earnings boost we expect from these communities in '26 and '27, we're excited about their long-term positioning for future cash flow growth as brand new assets built and designed by us to respond to future demographic trends.
But that's what's happening with.
Renewal offers and where you think they might settle in terms of the.
Yes, the overall forecast just to provide some commentary for 2006.
We are including more larger-format homes, designed for working from home. In our unit mix, including H communities with the BTR component, and many feature excellent, infill locations walkable to nearby retail.
We're expecting it to come in around 2%.
And with that, we're ready to open up the line for questions.
Operator: Thank you. We will now be conducting a question-and-answer session. We ask that you kindly limit yourselves with two questions only. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Eric Wolfe with Citi. You may proceed with your question.
Operator: Thank you. We will now be conducting a question-and-answer session. We ask that you kindly limit yourselves with two questions only. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Eric Wolfe with Citi. You may proceed with your question.
Which is only about 30 basis points above what we actually realized in 2025.
Our assumption is that the renewals will basically average about the same as 2025 sort of in that mid 3% range.
And we're expecting move ins to improve by roughly 770 to 80 basis points.
In 2026 as compared to 2025, so that it comes in instead of being modestly negative it comes in around flat for the year 2026.
Thank you. We will now be conducting a question-and-answer session. We ask that you kindly limit yourselves to two questions. Only as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
And for context, and Ben referred to this as well we are expecting a relatively similar economic environment is 25%, but about 40% less supply. So we are forecasting sequential improvement quarterly until we get to Q4. So that kind of gives you the broad picture of the full year and then as it relates to.
Our first question comes from the line of Eric Wolf with Citi. You may proceed with your question.
Eric Wolfe: Hey, good afternoon. Thanks for taking my questions. You mentioned that renewals are going out in the 4 to 4.5% range. I guess, first, could you talk about whether you expect to achieve 4 to 4.5% on these renewals or the take rate will be lower? And then second, you know, what changed between now and the 2.5% you achieved on renewals in January? It just feels like there's been a bit of a jump over the last month or two. I'm just wondering what caused that.
Eric Wolfe: Hey, good afternoon. Thanks for taking my questions. You mentioned that renewals are going out in the 4 to 4.5% range. I guess, first, could you talk about whether you expect to achieve 4 to 4.5% on these renewals or the take rate will be lower? And then second, you know, what changed between now and the 2.5% you achieved on renewals in January? It just feels like there's been a bit of a jump over the last month or two. I'm just wondering what caused that.
For the first half versus second half outlook, we are expecting the first half performance to be pretty similar to what we experienced in the second half of 2025, which was roughly.
Hey, good afternoon, thanks for taking my questions. Um, you mentioned that renewals were going out in the 4, to 4 and a half range. Um, I guess first, could you talk about whether you expect the chief 4 to 4 and a half percent on these renewals or to take rate will be lower and then second you know what changed between now and the 2 and a half percent you achieved on renewals in January it just feels like there's a been a bit of a jump over the last month or 2 um and just wondering what caused that.
Basically one 2%, we're basically about the same level as we come into the first half.
Matt Birenbaum: Yeah, Eric, I want to talk a little bit about how we see the rent change forecast playing out throughout the year. But to your specific question, what I indicated in my prepared remarks is that the renewal offers for February, March were out in the 4 to 4.5% range. As you probably know, they always settle at something less than that. The historical range, the settlement is probably, you know, 100 to 125 basis points of dilution or something like that, depending on the market environment. But, you know, that's, that's what's happening with the renewal offers and where you think they might settle. In terms of the, yeah, the overall forecast, just to provide some commentary for 2026.
Matthew H. Birenbaum: Yeah, Eric, I want to talk a little bit about how we see the rent change forecast playing out throughout the year. But to your specific question, what I indicated in my prepared remarks is that the renewal offers for February, March were out in the 4 to 4.5% range. As you probably know, they always settle at something less than that. The historical range, the settlement is probably, you know, 100 to 125 basis points of dilution or something like that, depending on the market environment. But, you know, that's, that's what's happening with the renewal offers and where you think they might settle. In terms of the, yeah, the overall forecast, just to provide some commentary for 2026.
<unk> 2026, and then in terms of the expected improvement in the second half versus the first half it's really driven by four factors first as has been noted a slight uptick in job growth, which is expected to occur in the second half of the year and a slightly better mix of jobs, but also importantly sort of the cumulative effect of.
48% less supply and the absorption of some of the standing inventory from the end of 2025 carrying through the first half of 'twenty six and then lastly, it's just some softer comps as we get into the back half of 2026, given what we actually achieved in the back half of 2025, so sorry to provide a little bit of an overview as to how we are.
Yeah, Eric um, I want to talk a little bit about how we see the rent change, uh, forecast playing out throughout the year. Uh, but to your specific question, um, what I indicated in my prepared remarks is that the renewal offers for February March were out in the 4-4 and a half percent range, as you probably know they always settle at something. Less than that the historical range. The settlement is probably, you know, 100 to 125 basis points of dilution or something like that, depending on the market environment.
Matt Birenbaum: Yeah, we're expecting it to come in around 2%, which is only about 30 basis points above what we actually realized in 2025. Our assumption is that the renewals will basically average about the same as 2025, sort of in the mid 3% range. We're expecting move-ins to improve by roughly 70 to 80 basis points in 2026 as compared to 2025. So that it comes in, instead of being modestly negative, it comes in around flat for the year 2026. For context, you know, and Ben referred to this as well, we are expecting a relatively similar economic environment as 2025, but about 40% less supply. We are forecasting sequential improvement quarterly until we get to Q4. That kind of gives you the broad picture of the full year.
Matthew H. Birenbaum: Yeah, we're expecting it to come in around 2%, which is only about 30 basis points above what we actually realized in 2025. Our assumption is that the renewals will basically average about the same as 2025, sort of in the mid 3% range. We're expecting move-ins to improve by roughly 70 to 80 basis points in 2026 as compared to 2025. So that it comes in, instead of being modestly negative, it comes in around flat for the year 2026. For context, you know, and Ben referred to this as well, we are expecting a relatively similar economic environment as 2025, but about 40% less supply. We are forecasting sequential improvement quarterly until we get to Q4. That kind of gives you the broad picture of the full year.
Um, but you know, that's what's happening with, uh, the renewal offers and where you think they might settle in terms of the, you know, the overall forecast, uh, just to provide some commentary for '26.
Thinking about it overall I hopefully that's helpful in terms of the trends were expecting.
Yes, that's very helpful. I guess the question really is sort of how.
Um, you know, we're expecting it to come in around 2%, which is only about 30 basis points above what we actually realized in 2025.
<unk> do you think that sort of ramp is because it's just it's a bigger ramp from the first half to the second half and so when you've seen supply I think linger a bit longer than people expect especially in some of these sunbelt markets, which youre not in but I guess the question is is how predictable you think that sort of impact from.
Um, our assumption is that the renewals will basically average about the same as 2025, sort of in the mid-3% range.
And we're expecting to move into improved by roughly 7,870 to 8,000 basis points in 2026 as compared to 2025.
Supply is going into the second half of the year and how much supply for the impact of supply really drop off in the back half.
So that it comes in, instead of being modestly negative, it comes in around flat for the year 2026.
Yes, no I mean.
That's what our forecast reflects in part why we're expecting the first half to be a little bit weaker is some of that lingering standing inventory in some markets that's carrying over from the back half of 2005 through the first half of 2006, even though deliveries will be down meaningfully in both the first half in the second half there is some standing inventory.
Matt Birenbaum: As it relates to the first half versus the second half outlook, we are expecting the first half performance to be pretty similar to what we experienced in the second half of 2025, which was roughly basically 1.2%. We're basically about the same level as we come into the first half of 2026. In terms of the expected improvement in the second half versus the first half, it's really driven by four factors.
Matthew H. Birenbaum: As it relates to the first half versus the second half outlook, we are expecting the first half performance to be pretty similar to what we experienced in the second half of 2025, which was roughly basically 1.2%. We're basically about the same level as we come into the first half of 2026. In terms of the expected improvement in the second half versus the first half, it's really driven by four factors.
<unk> to absorb and once that occurs then there are just much fewer options for people to choose from and as I noted, particularly on the move in side, which is where we expect 60 70 basis points of improvement relative to 2025, Thats, where youre going to see at the most we expect renewals to be relatively flat.
Matt Birenbaum: First is, as Ben noted, a slight uptick in job growth, which is expected to occur in the second half of the year, and a slightly better mix of jobs, but also importantly, sort of the cumulative effect of 40% less supply and the absorption of some of the standing inventory from the end of 2025, carrying through the first half of 2026.
Matthew H. Birenbaum: First is, as Ben noted, a slight uptick in job growth, which is expected to occur in the second half of the year, and a slightly better mix of jobs, but also importantly, sort of the cumulative effect of 40% less supply and the absorption of some of the standing inventory from the end of 2025, carrying through the first half of 2026.
Think about it from 2006 relative to 25, so I think thats.
In terms of our confidence and Thats, what our models reflect at this point in time and certainly we will be able to update you as we go through the year, but that's part of the reasons why we look part of the reason why we look at it that way in terms of first half versus second half.
And for context, you know, and have been referred to this as well, we are expecting a relatively similar economic environment as '25, but about 40% less supply. So, we are forecasting sequential improvement quarterly until we get to Q4. So that kind of gives you the broad picture of the full year. And then as it relates to the first half versus the second half outlook, we are expecting the first half performance to be pretty similar to what we experienced in the second half of 2025, which was roughly—basically 1.2%. We're basically at about the same level as we come into the first half of 2026. And then, in terms of the expected improvement in the second half versus the first half, it's really driven by four factors. First is, as has been noted, a slight uptick in job growth, which is expected to occur in the second half of the year, and a slightly better mix of jobs. But also importantly, sort of the cumulative effect of 40...
Got it and then Eric on the.
Sean Breslin: ... And then lastly, it's just some softer comps as we get into the back half of 2026, given what we actually achieved in the back half of 2025. So just thought I'd provide a little bit of an overview as to how we're thinking about it overall, and hopefully that's helpful in terms of the trends we're expecting.
Matthew H. Birenbaum: And then lastly, it's just some softer comps as we get into the back half of 2026, given what we actually achieved in the back half of 2025. So just thought I'd provide a little bit of an overview as to how we're thinking about it overall, and hopefully that's helpful in terms of the trends we're expecting.
Sure.
And Eric on the demand side, just to give you some more color there we're not assuming a huge pickup in terms of job growth. This year. If you look at the <unk> figures.
Ended the year at roughly 20000 jobs per month.
Percentage inventory from the end of 2025 carrying through the first half of '26. And then, lastly, is just some softer comps as we get into the back half of 2026, given what we actually achieved in the back half of 2025. So, decided to provide a little bit of an overview as to how we're thinking about it overall, and hopefully that's helpful in terms of the trends we're expecting.
That is a similar places we come into 2026, and then builds into the range of 70% to 75000 jobs as we get into the back half of 2026.
Eric Wolfe: Yeah, that's very helpful. I guess the question really is sort of how predictable do you think that sort of ramp is? Because it just, it's just a bigger ramp, right, from the first half to the second half. And so we've seen supply, I think, linger a bit longer than people expected, especially in some of these Sun Belt markets, which you're not in. But I guess the question is, you know, how predictable do you think this impact from supply is going into the second half of the year? And how much the supply or the impact of supply really drop off in the back half?
Eric Wolfe: Yeah, that's very helpful. I guess the question really is sort of how predictable do you think that sort of ramp is? Because it just, it's just a bigger ramp, right, from the first half to the second half. And so we've seen supply, I think, linger a bit longer than people expected, especially in some of these Sun Belt markets, which you're not in. But I guess the question is, you know, how predictable do you think this impact from supply is going into the second half of the year? And how much the supply or the impact of supply really drop off in the back half?
Thank you.
Our next question comes from the line of Steve Sochua with Evercore ISI you May proceed with your question.
Yes, thanks, good afternoon.
Look I know in 25, you guys had to take.
Take a couple of bites at the guidance and make some reductions so as you thought about setting guidance for this year.
Yeah, that's very helpful. I guess the, the question really is sort of how predictable. Do you think that sort of ramp is because it just it's just a bigger ramp right from the first half to the to the second half. And so we've seen Supply, I think linger a bit longer than than people expected especially in some of these these Sunbelt markets which which you're not in. But I guess the question is is you know, how predictable do you think the sort of this this impact from Supply is going into the second half of the year and how much the supply for the impact of Supply really drop off in the back half?
Sean Breslin: Yeah. No, I mean, that's what our forecast reflects. In part, why we're expecting the first half to be a little bit weaker is some of that lingering standing inventory in some markets that's carrying over from the back half of 2025 through the first half of 2026. Even though deliveries will be down meaningfully in both the first half and the second half, there is some standing inventory to absorb. Once that occurs, then there are just much fewer options for people to choose from. As I noted, particularly on the move-in side, which is where we expect, you know, 60, 70 basis points of improvement relative to 2025, that's where you're going to see it the most. We expect renewals to be relatively flat, if you think about it for 2026 relative to 2025.
Sean J. Breslin: Yeah. No, I mean, that's what our forecast reflects. In part, why we're expecting the first half to be a little bit weaker is some of that lingering standing inventory in some markets that's carrying over from the back half of 2025 through the first half of 2026. Even though deliveries will be down meaningfully in both the first half and the second half, there is some standing inventory to absorb. Once that occurs, then there are just much fewer options for people to choose from. As I noted, particularly on the move-in side, which is where we expect, you know, 60, 70 basis points of improvement relative to 2025, that's where you're going to see it the most. We expect renewals to be relatively flat, if you think about it for 2026 relative to 2025.
Maybe what lessons did you learn in 'twenty five that you carried over this year and when you kind of look at page 14, I guess is the building blocks are there some of those.
Figures that you have more confidence in that there are upside and I guess, which ones are you a little bit more worried about having downside risk.
Sure Steve I'll start on the kind of guidance approach question and then others can weigh in on the upside downside scenarios our approach to guidance remains as it has been.
Go through a very detailed process, particularly at the beginning of each year and as also as part of our our midyear re forecast.
Sean Breslin: So I think that's in terms of our confidence in that, that's what our models reflect at this point in time, and certainly we'll be able to update you as we go through the year. But that's part of the reason why we look at it that way in terms of first half versus second half.
Sean J. Breslin: So I think that's in terms of our confidence in that, that's what our models reflect at this point in time, and certainly we'll be able to update you as we go through the year. But that's part of the reason why we look at it that way in terms of first half versus second half.
And we're looking at the best data that we have available at that point in time, we naturally think through upside scenarios downside scenarios.
But we use all of that to come up with our best estimate looking forward out over the next 12 months and then importantly <unk>.
Yeah, no, I mean uh that's what our forecast reflects. And in part by we're expecting the first half to be a little bit weaker. Is somebody that lingering standing inventory in some markets that's carrying over from the back, half of 25 through the first half of 26, even though deliveries will be down meaningfully in both the first half. And the second half there is some standing inventory to absorb and once that occurs, then there are just much fewer options for people to choose from. And as I know to particularly on the Move in side which is where we expect you know, 60 70 basis points of improvement relative to the 2025 that's where you're going to see it. The most we expect renewals to be a relatively flat um if you think about it for 26 relative to 25, so I think that's uh in terms of our confidence and that that's what our models reflect at this point in time and certainly we'll be able to update you as we go through the year. But that's part of the reasons why we part of the reason why we look at it that way.
In terms of first half versus second half.
Eric Wolfe: Got it.
Eric Wolfe: Got it.
Benjamin Schall: And then, Eric, on the demand side, just to give you some more color there, you know, we're not assuming a huge pickup in terms of job growth this year. If you look at the NABE figures, you know, ended the year at roughly 20,000 jobs per month, that, you know, is a similar place as we come into 2026, and then builds, you know, into the range of 70,000 to 75,000 jobs as we get into the back half of 2026.
Benjamin W. Schall: And then, Eric, on the demand side, just to give you some more color there, you know, we're not assuming a huge pickup in terms of job growth this year. If you look at the NABE figures, you know, ended the year at roughly 20,000 jobs per month, that, you know, is a similar place as we come into 2026, and then builds, you know, into the range of 70,000 to 75,000 jobs as we get into the back half of 2026.
Got it. And then, Eric, on the demand,
By that transparency to investors. So that you understand what's underneath those assumptions and we can discuss those as that as the year unfolds.
Yes in terms of looking at slide 14.
And Eric, on the demand side, just to give you some more color there, you know, we're not assuming a huge pickup in terms of job growth this year. If you look at the NAV figures—
The development earnings.
I put that very much in the concrete category. These are and Matt talked about this in his commentary.
The earnings coming online. This year those are projects that are under construction a lot of them are already in their initial phases of lease up we've got pretty good clarity about how that income will roll in over time, we've pre funded that activity. So I put that in.
You know, ended the year at roughly 20,000 jobs per month, um, that, you know, is a similar place as we come into 2026, and then builds, you know, into the range of 70,000 to 75,000 jobs as we get into the back half of 2026.
Eric Wolfe: Thank you.
Eric Wolfe: Thank you.
Thank you.
Operator: Our next question comes from the line of Steve Sakwa with Evercore ISI. You may proceed with your question.
Operator: Our next question comes from the line of Steve Sakwa with Evercore ISI. You may proceed with your question.
Steve Sakwa: Yeah, thanks. Good afternoon. Look, I know in 25 you guys had to, you know, take a couple bites at the guidance and make some reductions. So as you thought about setting guidance for this year, you know, maybe what lessons did you learn in 25 that you carried over this year? And when you kind of look at page 14, I guess, is the building blocks, are there some of those, you know, figures that you have more confidence in that they're upside, and I guess which ones are you a little bit more worried about having downside risk?
Isi, you may proceed with your question.
Steve Sakwa: Yeah, thanks. Good afternoon. Look, I know in 25 you guys had to, you know, take a couple bites at the guidance and make some reductions. So as you thought about setting guidance for this year, you know, maybe what lessons did you learn in 25 that you carried over this year? And when you kind of look at page 14, I guess, is the building blocks, are there some of those, you know, figures that you have more confidence in that they're upside, and I guess which ones are you a little bit more worried about having downside risk?
In the category of a fairly baked in earnings.
Attribute to investors as the year progresses.
Yes, the only thing I would add is for the most part as it relates to sort of the core same store portfolio. I think the main question is the demand question.
Uh, yeah. Thanks, uh, good afternoon. Um, look, I know in '25, you guys had to, you know, take a couple bites at the guidance and make some reduction. So, as you thought about setting guidance for this year, you know, maybe what lessons did you learn in '25 that you carried over this year? And when you kind of look at page 14, I guess, is the building blocks.
On how you look at the outlook from an economic standpoint, the upside or downside is really tied to demand there and so we saw job growth accelerate more quickly with the reductions in supply like I mentioned in the mid Atlantic with supply from announced 60% that could give you a little bit of a springboard to better performance sooner than the <unk>.
Are there some of those, um, you know, figures that you have more confidence in—that they're upside? And I guess, which ones are you a little bit more worried about having downside risk?
Benjamin Schall: Sure, Steve. I'll start on the kind of guidance approach question, and then others can weigh in on the upside, downside scenarios. You know, our approach to guidance, you know, remains as it has been. You know, we go through a very detailed process, you know, particularly at the beginning of each year, and it's also as part of our mid-year reforecast. And we're looking at the best data that we have available at that point in time. We naturally think through, you know, upside scenarios, downside scenarios, but we use all that to come up with, you know, our best estimate looking forward out over the next 12 months. And then, you know, importantly, provide that transparency to investors so that you understand what's underneath those assumptions, and we can discuss those as the year unfolds.
Benjamin W. Schall: Sure, Steve. I'll start on the kind of guidance approach question, and then others can weigh in on the upside, downside scenarios. You know, our approach to guidance, you know, remains as it has been. You know, we go through a very detailed process, you know, particularly at the beginning of each year, and it's also as part of our mid-year reforecast. And we're looking at the best data that we have available at that point in time. We naturally think through, you know, upside scenarios, downside scenarios, but we use all that to come up with, you know, our best estimate looking forward out over the next 12 months. And then, you know, importantly, provide that transparency to investors so that you understand what's underneath those assumptions, and we can discuss those as the year unfolds.
Second half.
If that were the case, then you start to see more of that benefit accrue into 2026 as opposed to 2027.
And obviously the downside scenarios, if we saw a significant weakening in the environment from where we are today, then that would be towards your downside case.
Okay. Thanks, and then I guess follow up.
On the development, maybe just for Matt I.
I know you guys kind of cut the starts number in half this year.
And you sort of raise the hurdle rate a bit is the reduction.
More of a function of enough deals don't pencil out that six five to seven or was it more of a conscious decision to just say hey, given the choppy environment, we just don't want to start.
Benjamin Schall: You know, in terms of, you know, looking at slide 14, you know, the development earnings, you know, I, I put that very much in the concrete category. These are... And Matt talked about this, you know, in his commentary. The earnings coming online this year, those are projects that are under construction. A lot of them are already in their initial phases of lease-up. We've got pretty good clarity about how that income will roll in over time. We've pre-funded that activity. So I, I put that, you know, you know, in the category of a fairly baked-in earnings to attribute to investors as the year progresses.
Benjamin W. Schall: You know, in terms of, you know, looking at slide 14, you know, the development earnings, you know, I, I put that very much in the concrete category. These are... And Matt talked about this, you know, in his commentary. The earnings coming online this year, those are projects that are under construction. A lot of them are already in their initial phases of lease-up. We've got pretty good clarity about how that income will roll in over time. We've pre-funded that activity. So I, I put that, you know, you know, in the category of a fairly baked-in earnings to attribute to investors as the year progresses.
Sure Steve. I'll I'll start on the kind of guidance approach question and then others can weigh in on the upside downside scenarios, you know, our our approach to guidance, you know, remains as it has been. Uh, you know, we go through a very detailed process, you know, particularly at the beginning of each year and it's also as part of our, our mid-year re forecast, um, and we're looking at the best data that we have available um at that point in time we naturally think through you know, upside scenarios downside scenarios. Uh but we we use all that to come up with, you know, our best estimate looking forward out over the next 12 months and then, you know, importantly, uh, provide that transparency to investors so that you understand what's underneath those assumptions, um, and we can discuss those as, as a year. Uh, unfolds
A 1 billion and a half of projects, even if they make the hurdle.
Given the uncertainty in the environment today.
Yeah, Hey, Steve It's Matt, it's a little bit of both I mean, we look at it very much it starts bottom up where the deals whats going on in our pipeline and kind of.
How big is that opportunity set and then there is a top down piece as well, which is that align with kind of our funding.
Our funding capacity and costs so.
Usually particularly now that we have this DSP the developer funding program, we can see our Avalon Bay starts coming a year or two in advance of three years four years in advance in some cases because of the entitlement process.
Yeah, in terms of, you know, looking at slide 14, um, you know, the development earnings. Um, you know, I I put that very much in the concrete category, these are and Matt talked about this, you know, in his commentary uh the earnings coming online this year, those are projects that are under construction. A lot of them are already in their initial phases of lease up. Uh, we've got pretty good clarity about how that income, uh, Will Roll in over time. Uh, We've pre-funded that activity. Uh, so I I put that, you know, you know, in the category of a fairly baked in earnings, uh, to attribute to investors as the year progresses.
Sean Breslin: Yes, Steve, the only thing I would add is, for the most part, as it relates to sort of the core same-store portfolio, I think the main question is, you know, the demand question. And depending on how you look at the outlook from an economic standpoint, the upside and the downside is really tied to demand there. And so we saw, you know, job growth accelerate more quickly, you know, with the reductions in supply, like I mentioned, in the Mid-Atlantic, with supply coming down 60%. That could give you a little bit of a springboard to better performance sooner than the second half. If that were the case, then you start to see more of that benefit accrue into 2026 as opposed to 2027.
Sean J. Breslin: Yes, Steve, the only thing I would add is, for the most part, as it relates to sort of the core same-store portfolio, I think the main question is, you know, the demand question. And depending on how you look at the outlook from an economic standpoint, the upside and the downside is really tied to demand there. And so we saw, you know, job growth accelerate more quickly, you know, with the reductions in supply, like I mentioned, in the Mid-Atlantic, with supply coming down 60%. That could give you a little bit of a springboard to better performance sooner than the second half. If that were the case, then you start to see more of that benefit accrue into 2026 as opposed to 2027.
Dan.
We also have the ability to fund other developers through our developer funding program.
It will come more quickly and so the last couple of years. Our starts list has included both deals we know about our pipeline and kind of an allowance for quick start business, which could be DSP or it could be in this environment deals that other developers.
I, just can't get capitalized and have given up on it and are now willing to sell sometimes selling land at a law. We've done a few of those deals too so.
Sean Breslin: And obviously, the downside scenario is if we saw a significant weakening in the environment from where we are today. Then that would be our downside case.
Sean J. Breslin: And obviously, the downside scenario is if we saw a significant weakening in the environment from where we are today. Then that would be our downside case.
A lot of it is just we're going into the year expecting less of that quick start business to underwrite and then some of it is yes. I mean, we are we are looking at demanding higher yields and we are seeing that some of thats in the geographic mix as well.
Steve Sakwa: Okay, thanks. And then, I guess follow-up on the development, maybe just for Matt. I know you guys kind of cut the starts number in half this year, and you sort of raised the, the hurdle rate a bit. Is the reduction more a function of enough deals don't pencil at that 6.5 to 7, or was it more of a conscious decision to just say, "Hey, given the choppy environment, we just don't want to start, you know, $1.5 billion of projects, even if they make the hurdle, you know, just given the uncertainty in the environment today?
Steve Sakwa: Okay, thanks. And then, I guess follow-up on the development, maybe just for Matt. I know you guys kind of cut the starts number in half this year, and you sort of raised the, the hurdle rate a bit. Is the reduction more a function of enough deals don't pencil at that 6.5 to 7, or was it more of a conscious decision to just say, "Hey, given the choppy environment, we just don't want to start, you know, $1.5 billion of projects, even if they make the hurdle, you know, just given the uncertainty in the environment today?
The starts we plan this year are much more heavily weighted to our established east coast regions last year. It was maybe 40% West coast, 40% expansion, 20% established sheets. This year, it's like.
70, 80% established she's done a little bit of expansion and really nothing on the west coast, So and that those regions tend to have higher yields.
Okay. Thanks and then I guess follow up um on the development maybe just for Matt. Um I know you guys kind of cut the starts number in half this year. Um and you sort of raise the the hurdle rate a bit um is the reduction more a function of enough deals don't pencil at that 6 and a half to 7 or was it more of a conscious decision to just say, hey given the choppy environment, we just don't want to start, you know, a billion and a half of projects even if they make the hurdle, you know, just giving the uncertainty in the environment today.
Sean Breslin: Hey, Steve, it's Matt.
Matthew H. Birenbaum: Hey, Steve, it's Matt.
Matt Birenbaum: ... It's a little bit of both. I mean, we look at it very much. It starts bottom up. Where are the deals? What's going on in our pipeline? And, you know, kind of, how big is that opportunity set? And then there is a top-down piece as well, which is, does that align with kind of our funding capacity and cost? So, usually, particularly now that we have this DFP, the Developer Funding Program, we can see our AvalonBay starts coming, you know, a year or two in advance or three years, four years in advance, in some cases because of the entitlement process. But then, we also have the ability to fund other developers through our developer funding program. Those deals come more quickly.
Matthew H. Birenbaum: ... It's a little bit of both. I mean, we look at it very much. It starts bottom up. Where are the deals? What's going on in our pipeline? And, you know, kind of, how big is that opportunity set? And then there is a top-down piece as well, which is, does that align with kind of our funding capacity and cost? So, usually, particularly now that we have this DFP, the Developer Funding Program, we can see our AvalonBay starts coming, you know, a year or two in advance or three years, four years in advance, in some cases because of the entitlement process. But then, we also have the ability to fund other developers through our developer funding program. Those deals come more quickly.
Yeah, hey Steve. It's Matt.
The next question comes from John Pawlowski with Green Street, You May proceed with your question.
Thanks, Matt I want to continue that conversation.
The $800 million in starts this year, how much have you had to lower pro forma rents just given the softness in market rents over the last six to 12 months, even in those established east coast regions.
Yes, its interesting John there are a couple of deals some.
Pretty much even what.
What we've seen in a couple of cases actually we just started a deal in Q4 in northern New Jersey console Parsippany and that deal is a high sixes yield and when we underwrote it kind of in due diligence a year and a half ago two years ago. The rents were higher and the costs were higher and what we saw is when we went to our <unk>.
Matt Birenbaum: So, the last couple of years, our starts list has included both deals we know about in our pipeline and a kind of an allowance for quick start business, which could be DFP, or it could be in this environment, deals that other developers, you know, just can't get capitalized and have given up on and are now willing to sell, sometimes selling the land at a loss. We've done a few of those deals, too. So, a lot of it is just, you know, we're, we're going into the year expecting less of that quick start business to underwrite. And then some of it is, yeah, I mean, we are, you know, we are looking at, demanding, higher yields, and, you know, we are seeing that. So some of that's in the geographic mix as well.
Matthew H. Birenbaum: So, the last couple of years, our starts list has included both deals we know about in our pipeline and a kind of an allowance for quick start business, which could be DFP, or it could be in this environment, deals that other developers, you know, just can't get capitalized and have given up on and are now willing to sell, sometimes selling the land at a loss. We've done a few of those deals, too. So, a lot of it is just, you know, we're, we're going into the year expecting less of that quick start business to underwrite. And then some of it is, yeah, I mean, we are, you know, we are looking at, demanding, higher yields, and, you know, we are seeing that. So some of that's in the geographic mix as well.
It's a little bit of both. I mean, it, we, we look at it very much. It starts bottom up where the deals? What's going on in our Pipeline? And, you know, kind of, uh, how big is that opportunity set. And then there's a top down piece as well, which is does that align with kind of our funding uh CA our funding capacity and cost. So uh usually particularly now that we have this dfp the developer funding program, we can see our Avalon base starts coming, you know, a year or 2 in advance or 3 years 4 years in advance, in some cases because of the entitlement process. Uh but then um we also have a uh the ability to fund other developers through our developer funding program, those deals come more quickly. And so the last couple years, our starts list has included both deals. We know about in our Pipeline and a kind of an allowance for quick start business, which could
And what we call class III budgets.
Our hard costs came in at.
The rents are down a little bit.
And those two more or less washed out so that the yield kind of stayed the same.
So that's that's what we're seeing.
For the most part with that particular mix of business is.
Little bit less rent and a little bit less cost and in some cases the cost reduction is more than the NOI reduction and in some cases not.
Matt Birenbaum: The starts we planned this year are much more heavily weighted to our established East Coast regions. Last year, it was maybe 40% West Coast, 40% expansion, 20% established East. This year, it's like, you know, 70, 80% established East and a little bit of expansion, and really nothing on the West Coast, so. And that those regions tend to have higher yields.
Okay.
Matthew H. Birenbaum: The starts we planned this year are much more heavily weighted to our established East Coast regions. Last year, it was maybe 40% West Coast, 40% expansion, 20% established East. This year, it's like, you know, 70, 80% established East and a little bit of expansion, and really nothing on the West Coast, so. And that those regions tend to have higher yields.
What I'm getting at is I'm very surprised about how how high the yields are and I know you guys are very good at what you do but if there is high 7% yields versus maybe low to mid five cap rates in these markets.
The starts we plan this year are much more heavily weighted to our established East Coast regions. Last year, it was maybe 40% West Coast, 40% expansion, and 20% established sheets. This year, it's like—
If thats true economics, where we should expect to see developments start to reaccelerate across across your markets. So is there anything idiosyncratic in this 800 million pipeline, that's not representative market yields or do you think that that's.
You know, 70% to 80% established East and a little bit of expansion, and really nothing on the West Coast. So, and those regions tend to have higher yields.
Operator: The next question comes from John Pawlowski with Green Street. You may proceed with your question.
Operator: The next question comes from John Pawlowski with Green Street. You may proceed with your question.
It's a represented sample size.
The next question comes from John Paloski with Green Street. You may proceed with your question.
John Pawlowski: Thanks. Matt, I wanna continue that, that conversation. The $800 million in starts this year, how much have you had to lower pro forma rents, just given the softness in market rents over the last 6 to 12 months, even in those established East Coast regions?
John Pawlowski: Thanks. Matt, I wanna continue that, that conversation. The $800 million in starts this year, how much have you had to lower pro forma rents, just given the softness in market rents over the last 6 to 12 months, even in those established East Coast regions?
It is more select I mean, its hard there arent as many deals that we're finding.
That can achieve that spread but I will say, we're finding more than our share and it's been our view for a while that we can get an expanding share of a shrinking pie here a lot of these genre deals we've been working on and the entitlements process for years and they are kind of unique factors there.
Thanks. Uh, Matt, I want to continue that conversation. Um, the $800 million starts this year. How much have you had to lower pro forma rents, just given the softness in market rents for the last 6 to 12 months, even in those established East Coast regions?
Matt Birenbaum: Yeah, you know, it's interesting, John. There are a couple deals. Some are pretty much even. What we've seen in a couple cases, actually, we just started a deal in Q4 in Northern New Jersey, Avalon Parsippany, and that deal is a high sixes yield. And when we underwrote it, kind of in due diligence a year and a half ago, two years ago, the rents were higher and the costs were higher. And what we saw is when we went to our final, what we call Class III budgets, the hard costs came in, and the rents are down a little bit, and, you know, those two more or less washed out so that the yield kind of stayed the same.
Matthew H. Birenbaum: Yeah, you know, it's interesting, John. There are a couple deals. Some are pretty much even. What we've seen in a couple cases, actually, we just started a deal in Q4 in Northern New Jersey, Avalon Parsippany, and that deal is a high sixes yield. And when we underwrote it, kind of in due diligence a year and a half ago, two years ago, the rents were higher and the costs were higher. And what we saw is when we went to our final, what we call Class III budgets, the hard costs came in, and the rents are down a little bit, and, you know, those two more or less washed out so that the yield kind of stayed the same.
There may be an affordable component there may be a pilot not at New York City pilot, but a long term pilot there may be other things there that.
Our difficult for folks that haven't been in this business and in these markets on the ground for years and years to kind of reconstruct side I do think we're seeing a little more supply in some of these.
More supply constrained east coast jurisdictions.
But we're getting a bigger share of it and our volumes dropping too so I'm not overly worried that we're going to suddenly see a flood of supply and a lot of people can recreate.
Yeah, you know, it's interesting. Uh, John, there are a couple deals. Some, uh, are pretty much even, uh, what we've seen in a couple cases. Actually, we just started a deal in Q4 in northern New Jersey, a Conshohocken Parsippany. And that deal is a high fixed-yield, and when we underwrote it, uh, kind of in due diligence a year and a half ago, two years ago, the rents were higher and the costs were higher. And what we saw is when we went to our final, what we call Class 3 budgets, the hard costs came in, uh, and the rents—
Matt Birenbaum: So that's, that's what we're seeing, you know, for the most part with that particular mix of business, is a little bit less rent and a little bit less costs. And in some cases, the cost reduction is more than the NOI reduction, and in some cases, not.
Matthew H. Birenbaum: So that's, that's what we're seeing, you know, for the most part with that particular mix of business, is a little bit less rent and a little bit less costs. And in some cases, the cost reduction is more than the NOI reduction, and in some cases, not.
And John just for the for the broader listening audience out there I just wanted to correct, we're targeting for that for those $800 million of projects yields in the six 5% to 7% arena relative to cap rates in and around sort of circa 5% today.
Are down a little bit, uh, and you know, those two more or less washed out so that the yield kind of stayed the same. Um, so that's what we're seeing, uh, you know, for the most part with that particular mix of business is
John Pawlowski: Okay. What I'm getting at is I'm very surprised about how high the yields are, and I know you guys are very good at what you do, but if high 7% yields versus, I don't know, maybe low- to mid-5 cap rates in these markets, if that's true economics, we should expect to see development start to reaccelerate across your markets. So is there anything idiosyncratic in this $800 million pipeline that's not representative of market yields, or do you think that it's a representative sample size?
John Pawlowski: Okay. What I'm getting at is I'm very surprised about how high the yields are, and I know you guys are very good at what you do, but if high 7% yields versus, I don't know, maybe low- to mid-5 cap rates in these markets, if that's true economics, we should expect to see development start to reaccelerate across your markets. So is there anything idiosyncratic in this $800 million pipeline that's not representative of market yields, or do you think that it's a representative sample size?
A little bit less rent and a little bit less cost. And in some cases, the cost reduction is more—uh—than the NOI reduction. In some cases, not.
Okay.
Okay last question from me should we expect additional pressure from property tax abatements in 2020 seven or any other.
Pressure from utility costs, and Avalon connect or is 2026.
It's what I'm getting. I'm just very surprised at how high the yields are, and I know you guys are very good at what you do, but if there's—if high 7% yields versus, I don't know, maybe low to mid-5 cap rates in these markets,
The peak of the pressures if you will.
Yes, John this is Sean in terms of the DSA amounts.
Yes, we do expect some level of headwinds from abatements to continue.
But it does move around from year to year.
If that's true economics, we should expect to see developments start to re-accelerate across your markets. So, is there anything idiosyncratic in this $800 million pipeline that's not representative of market yields? Or do you think that it's a representative sample size?
Matt Birenbaum: It is more select. I mean, you know, it's hard. There aren't as many deals that we're finding that can achieve that spread, but I'll say we're finding more than our share, and it's been our view for a while that we can get an expanding share of a shrinking pie here. A lot of these, John, are deals we've been working on in the entitlements process for years, and there are kind of unique factors there. You know, there may be an affordable component, there may be a pilot, not a New York City pilot, but a long-term pilot. There may be other things there that are difficult for folks that haven't been in this business and in these markets on the ground for years and years to kind of reconstruct.
Matthew H. Birenbaum: It is more select. I mean, you know, it's hard. There aren't as many deals that we're finding that can achieve that spread, but I'll say we're finding more than our share, and it's been our view for a while that we can get an expanding share of a shrinking pie here. A lot of these, John, are deals we've been working on in the entitlements process for years, and there are kind of unique factors there. You know, there may be an affordable component, there may be a pilot, not a New York City pilot, but a long-term pilot. There may be other things there that are difficult for folks that haven't been in this business and in these markets on the ground for years and years to kind of reconstruct.
We do expect that for the next few years here in terms of that element.
In terms of Avalon connect those two components there.
There is bulk internet users smart access piece the bulk internet piece, we're pretty much stabilized there is a little bit of lingering.
Cost there for 2026 and that pretty much phases out the smart access component of which is far less impactful.
<unk> for probably another 18 to 24 months.
Um, it is more select. I mean, you know, it's hard there aren't as many deals that uh, we're finding, uh, that can achieve that spread. But I'll say we're finding more than our share and it's been our our view for a while that we can get an expanding share of a shrinking pie here, a lot of these, uh, John or deals. We've been working on in the entitlement process for years, and they're kind of unique factors there. Uh, you know, they're maybe an affordable component, there may be a a pilot, not a New York City pilot, but a long-term pilot.
It is relatively modest as compared to the bulk side of it.
Yeah.
Okay. Thanks for all the color.
Yes.
Matt Birenbaum: So I do think we're seeing a little more supply in some of these, you know, more supply-constrained East Coast jurisdictions, but we're getting a bigger share of it, and our volume is dropping, too. So I'm not overly worried that we're gonna suddenly see a flood of supply, that a lot of people can recreate it.
Matthew H. Birenbaum: So I do think we're seeing a little more supply in some of these, you know, more supply-constrained East Coast jurisdictions, but we're getting a bigger share of it, and our volume is dropping, too. So I'm not overly worried that we're gonna suddenly see a flood of supply, that a lot of people can recreate it.
Our next question comes from the line of Austin <unk> with Keybanc capital markets. You May proceed with your question.
Thanks, Good afternoon everybody.
You guys think about your remaining gains capacity or share buybacks or paired trades from the established regions into your expansion regions more attractive today.
Sean Breslin: John, just for the broader listening audience out there, I just wanna correct. You know, we're targeting for that—for those $800 million of projects yields in the 6.5% to 7% arena relative to cap rates, you know, in and around sort of circa 5% today.
There may be other things there that, um, are difficult for folks that haven't been in this business and in these markets on the ground for years and years, to kind of reconstruct. So I, I do think we're seeing a little more Supply in some of these, um, you know, uh, more Supply, constrained East Coast jurisdictions. Uh, but, uh, we're we're getting a bigger share of it and, and our volumes dropping too. So I'm not overly worried that we're going to suddenly see a flood of Supply, that a lot of people can recreate it.
Sean J. Breslin: John, just for the broader listening audience out there, I just wanna correct. You know, we're targeting for that—for those $800 million of projects yields in the 6.5% to 7% arena relative to cap rates, you know, in and around sort of circa 5% today.
Does the pullback in development funding needs provide any additional capacity or you for share buybacks without either levering up are evaluating paying a special dividend.
Yeah. Austin This is Kevin I'll start others may want to jump in here.
And, uh, John just, uh, for the for the broader listening audience out there, I just want to correct, you know, we're targeting for that for those 800 million dollars of projects yields in the 6 and a half to 7%. Um, Arena relative to to cap rates. You know, in in and around sort of Cirque of 5% today.
John Pawlowski: Okay. Last question from me. Should we expect additional pressure from property tax abatements in 2027, or any other pressure from utility costs and Avalon Connect, or is 2026 the peak of the pressures, if you will?
John Pawlowski: Okay. Last question from me. Should we expect additional pressure from property tax abatements in 2027, or any other pressure from utility costs and Avalon Connect, or is 2026 the peak of the pressures, if you will?
What I'd say is.
This year, our capital plan contemplates only modestly.
Sourcing capital from disposition activity, so that does leave us with.
Healthy level.
Asset sales capacity to fund incremental investment activity, whether it's for a share buyback or incremental development activity.
Okay. Uh, last question from me: should we expect additional pressure from property tax abatements in 2027, or any other, um, pressure from utility costs in Avalon Connect, or is 2026 the, um, the peak of the pressures, if you will?
Sean Breslin: Yeah, John, this is Sean. In terms of the abatements, yes, we do expect some level of headwind from abatements to continue, but it does move around from year to year. But they-- we do expect that for the next few years here in terms of that element. In terms of Avalon Connect, there's two components there. There's a-- there's bulk internet piece, there's a smart access piece. The bulk internet piece, we're pretty much are stabilized. There's a little bit of lingering costs there for 2026, and then that pretty much phases out. The smart access component, which is far less impactful, will continue for probably another 18 to 24 months, but is relatively modest as compared to the bulk side of it.
Sean J. Breslin: Yeah, John, this is Sean. In terms of the abatements, yes, we do expect some level of headwind from abatements to continue, but it does move around from year to year. But they-- we do expect that for the next few years here in terms of that element. In terms of Avalon Connect, there's two components there. There's a-- there's bulk internet piece, there's a smart access piece. The bulk internet piece, we're pretty much are stabilized. There's a little bit of lingering costs there for 2026, and then that pretty much phases out. The smart access component, which is far less impactful, will continue for probably another 18 to 24 months, but is relatively modest as compared to the bulk side of it.
Before we have to worry about a distribution obligations. So we do have capacity to sell.
A very healthy level of additional assets.
And retain the capital for future investment purposes.
Yeah, John, this is Sean. In terms of the, uh, the abatements—um, yes, we do expect, uh, some level of headwind from abatement to continue. Uh, but it does move around from year to year, uh, but we do expect that for the next few years here in terms of that element. Um, in terms of Avalon Connect, those two components—
Yes, I'll add.
But Kevin just to clarify right in our baseline budget, we're not assuming any share.
Share buyback activity we.
We do still very much see it on the menu of potential opportunities for this year and to your question and comment.
The potential opportunity of selling slower growth higher capex assets out of our existing portfolio and then redeploying that capital into share buybacks in todays range in sort of the low sixes.
There, um, there's a, there's a bulk internet piece, there's a smart access piece. The bulk internet piece, we're pretty much stabilized. There's a little bit of lingering, uh, cost there for 2026, and then it pretty much phases out. The smart access component, which is far less impactful, will continue for probably another 18 to 24 months, uh, but is relatively modest as compared to the bulk side of it.
[Analyst] (Bank of America): Okay. Thanks for all the color.
John Pawlowski: Okay. Thanks for all the color.
Okay, thanks for calling.
Operator: Yep. Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. You may proceed with your question.
Operator: Yep. Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. You may proceed with your question.
Not only accretive but also helps position the go forward portfolio for stronger growth.
Our next question comes from the line of Austin W. with KeyBanc Capital Markets. You may proceed with your question.
Austin Wurschmidt: Thanks. Good afternoon, everybody. When you guys think about your remaining gains capacity, are share buybacks or paired trades from the established regions into your expansion regions more attractive today? And does the pullback in development funding needs provide any, you know, additional capacity for you for share buybacks without, you know, either levering up or, you know, evaluating paying a special dividend?
Austin Wurschmidt: Thanks. Good afternoon, everybody. When you guys think about your remaining gains capacity, are share buybacks or paired trades from the established regions into your expansion regions more attractive today? And does the pullback in development funding needs provide any, you know, additional capacity for you for share buybacks without, you know, either levering up or, you know, evaluating paying a special dividend?
And then can you share with the cap rate was on the asset sale.
San Francisco in January and then provide an update I think you had.
Another $235 million or so pending sales that were previously under agreement as of late last year.
Yeah, Hey, Austin, it's Matt so.
The asset we sold in San Francisco last week actually.
Thanks, uh, good afternoon everybody. Um, when you guys think about your remaining gains capacity are are share BuyBacks or paired trades from the established regions into your expansion regions, more attractive today. It does the pullback in development funding needs provide any, you know, additional cap capacity for you for share BuyBacks without, you know, either Levering up or or, you know, evaluating paying a special dividend
Matt Birenbaum: Yeah, Austin, this is Kevin. I'll start. Others may want to jump in here. You know, what I'd say is, this year, our capital plan contemplates only modestly, you know, sourcing capital from disposition activity. So that does leave us with a healthy level of asset sales capacity to fund incremental investment activity, whether it's for a share buyback or incremental development activity, before we have to worry about a distribution obligation. So we do have capacity to sell a very healthy level of additional assets and retain the capital for future investment purposes.
Kevin O'Shea: Yeah, Austin, this is Kevin. I'll start. Others may want to jump in here. You know, what I'd say is, this year, our capital plan contemplates only modestly, you know, sourcing capital from disposition activity. So that does leave us with a healthy level of asset sales capacity to fund incremental investment activity, whether it's for a share buyback or incremental development activity, before we have to worry about a distribution obligation. So we do have capacity to sell a very healthy level of additional assets and retain the capital for future investment purposes.
That's a low five cap.
There's a bigger spread there between the cap rate and the yield given that we've done that for a while so theres a prop 13 overhang there.
Yeah, Austin. This is Kevin. Um, I'll start. Others may want to jump in here. Um,
But that's also an asset that had some pretty heavy capex needs in front of it. So you kind of have to factor all that into kind of what I would say economic cap rates, so to speak kind of in the low fives.
You know, I—I—what I'd say is, um, this year our capital plan kind of plates only modestly, you know.
Sourcing capital from disposition activities. So that does leave us with a
The one thing we have a couple of others either in the market are working that are.
Some are little bit higher than that in terms of the economic cap rate. Some are a little bit lower we will see where they clear the market we have.
At least one more than we expect to close here. This month, it's probably around the same kind of low fives cap rate a little bit less of a spread there so the yield.
We have a healthy level of asset sales capacity to fund incremental investment activity, whether it's for a share buyback or incremental development activity, before we have to worry about a distribution obligation. So, we do have capacity to sell a very healthy level of additional assets and retain the capital for future investment purposes.
Sean Breslin: Yeah, I'll add real quick, Kevin, just to clarify. Right, in our baseline budget, we're not assuming any share buyback activity. We do still very much, you know, see it on the menu of potential opportunities for this year. And, you know, to your question and comment, you know, the potential opportunity of selling slower growth, you know, higher CapEx assets out of our existing portfolio and then redeploying that capital into share buybacks, you know, in today's range in sort of the low sixes, while not only accretive, but also helps position the go-forward portfolio for stronger growth.
Sean J. Breslin: Yeah, I'll add real quick, Kevin, just to clarify. Right, in our baseline budget, we're not assuming any share buyback activity. We do still very much, you know, see it on the menu of potential opportunities for this year. And, you know, to your question and comment, you know, the potential opportunity of selling slower growth, you know, higher CapEx assets out of our existing portfolio and then redeploying that capital into share buybacks, you know, in today's range in sort of the low sixes, while not only accretive, but also helps position the go-forward portfolio for stronger growth.
Is probably not as high as that Sunset towers, and then we have a couple of others in the market working where.
You'll see there it really varies a lot based on what market you are selling into.
I will say is everything we have either plan for sale this year or currently in the market are all older high rise assets and most of them are in urban jurisdictions. So they're.
Yeah, I'll I'll add um well put Kevin just to you know clarify, right? And our Baseline budget. We're not assuming any uh, share buyback activity. Um, we do still very much, you know, see it on the the menu of potential opportunities uh for this year and you know, to your question and comment you know the potential opportunity of of selling.
They are very much aligned with our longer term portfolio goals.
So one thing I would add on that.
That San Francisco assets specifically.
That's a 50 plus year old high rise asset.
With some heavy capex subject to rent control. So it's a little bit of an outlier for our portfolio not necessarily representative of the rest of the assets that we own them.
Slower growth, you know, higher capex assets, out of our existing portfolio and then redeploying that Capital into share BuyBacks. You know, in today's range and sort of the low sixes, um 1 not only a creative. Uh but also helps position the go forward portfolio for stronger growth.
Austin Wurschmidt: Then can you share what the cap rate was on the asset sale in San Francisco in January, and then provide an update? I think you had, you know, another $235 million or so of pending sales that were previously under agreement as of late last year.
Austin Wurschmidt: Then can you share what the cap rate was on the asset sale in San Francisco in January, and then provide an update? I think you had, you know, another $235 million or so of pending sales that were previously under agreement as of late last year.
Okay. All very helpful. Thanks for the time.
Our next question comes from the line of Jana Galan with Bank of America. You May proceed with your question.
And then, can you share what the cap rate was on the asset sale in San Francisco in January, and then provide an update? I think you had, you know, another $235 million or so in pending sales that were previously under agreement as of late last year.
Matt Birenbaum: Yeah. Hey, Austin, it's Matt. So the asset we sold in San Francisco last week, actually, that's a low fives cap. There's a bigger spread there between the cap rate and the yield, given that we've owned that for a while, so there's a Prop 13 overhang there. But that's also an asset that had some pretty heavy CapEx needs in front of it, so you kind of have to factor all that in to kind of what I'd say is the economic cap rate, so to speak, kind of in the low fives. The ones that we have a couple others, either in the market or working, that are, some are a little bit higher than that in terms of the economic cap rate, some are a little bit lower. We'll see where they clear the market.
Matthew H. Birenbaum: Yeah. Hey, Austin, it's Matt. So the asset we sold in San Francisco last week, actually, that's a low fives cap. There's a bigger spread there between the cap rate and the yield, given that we've owned that for a while, so there's a Prop 13 overhang there. But that's also an asset that had some pretty heavy CapEx needs in front of it, so you kind of have to factor all that in to kind of what I'd say is the economic cap rate, so to speak, kind of in the low fives. The ones that we have a couple others, either in the market or working, that are, some are a little bit higher than that in terms of the economic cap rate, some are a little bit lower. We'll see where they clear the market.
Hi, Thank you for taking my question.
Following up on the renewal rates in the fourth quarter in January we were there any specific markets that kind of drove the decline versus the third quarter. I know you mentioned Les Austin, Boston I'm, just curious if there's any markets, where youre willing to maybe negotiate a little bit more to protect occupancy.
Yes, good question Sean.
I would say in general what we'd say is a little bit of moderation.
Cisco last week, actually, uh, that's a low 5S cap. Uh, there's a bigger spread there between the cap rate and the yield given that we've owned that for a while. So there's a Prop 13, overhang there. Uh, but that's also an asset that had some pretty heavy capex needs in front of it. So you kind of have to factor all that in to kind of what I'd say is, the economic cap rate. So to speak at kind of in the low 5S.
In Q4, because seasonally you are seeing the asking rents.
For our move ins come down and there is a correlation between the renewal rates you can achieve and what you think about it what people see on the website for the the deal down the street. So as you have softer moving.
Matt Birenbaum: We have at least one more that we expect to close here this month. It's probably around the same kind of low fives cap rate, a little bit less of a spread there, so the yield is probably not as high as at Sunset Towers. And then, you know, we have a couple others in the market working where, you know, we'll see there. It really varies a lot based on what market you're selling into. And I will say this, everything we have either planned for sale this year or currently in the market are all older, high-rise assets, and most of them are in urban jurisdictions. So they are very much aligned with our longer-term portfolio goals.
Matthew H. Birenbaum: We have at least one more that we expect to close here this month. It's probably around the same kind of low fives cap rate, a little bit less of a spread there, so the yield is probably not as high as at Sunset Towers. And then, you know, we have a couple others in the market working where, you know, we'll see there. It really varies a lot based on what market you're selling into. And I will say this, everything we have either planned for sale this year or currently in the market are all older, high-rise assets, and most of them are in urban jurisdictions. So they are very much aligned with our longer-term portfolio goals.
Uh, the ones that we—we have a couple others either in the market or working that are, uh, some are a little bit higher than that in terms of the economic cap rate, some are a little bit lower. We'll see where they clear the market. We have, um,
Unusually a little bit softer in Q4 this past year.
See it trend down so it was more broad based and individual I would say the markets, where we probably negotiated more of the some of the softer markets that I mentioned earlier in terms of the mid Atlantic as an example, Boston and Denver Apprise outliers.
The weaker side as compared to the average.
Thank you.
Yes.
The next question comes from the line of Jamie Feldman with Wells Fargo. You May proceed.
Sean Breslin: Yeah, Austin, one thing I'd add on that, on that San Francisco asset specifically is that's a, you know, 50-plus-year-old high-rise asset, with some heavy CapEx subject to rent control. So it's a little bit of an outlier for our portfolio, not necessarily representative of the rest of the assets that we own in the city.
Sean J. Breslin: Yeah, Austin, one thing I'd add on that, on that San Francisco asset specifically is that's a, you know, 50-plus-year-old high-rise asset, with some heavy CapEx subject to rent control. So it's a little bit of an outlier for our portfolio, not necessarily representative of the rest of the assets that we own in the city.
At least 1 more that we expect to close here. This month, it's probably around the same kind of low fives cap rate a little bit less of a spread there so the yield uh is probably not as high uh as that Sunset Towers. And then you know, we have a couple others in the market working where, um, you know, we'll see there. It really is very is a lot based on what Market you're selling into. And, um, I will say this everything we have either plan for sale this year, or currently in the market are all older high-rise assets and most of them are in urban jurisdictions. So uh, it does, they are very much aligned with our longer term portfolio goals.
Great. Thanks for taking the question can you talk more about the other income drag from the legislative activity last year, and then also I guess along those lines I mean, it's a midterm election year affordability is a hot topic any other initiatives you guys are watching closely and others in Massachusetts, the potential ballot initiatives.
Yeah, awesome. One thing I'd add on that, um, on that San Francisco asset specifically is that's a, you know, 50-plus-year-old high-rise asset, uh, with some heavy capex, subject to rent control. So, it's a little bit of an outlier for our portfolio—not necessarily representative of the rest of the assets that we own in the city.
Austin Wurschmidt: Okay. All very helpful. Thanks for the time.
Austin Wurschmidt: Okay. All very helpful. Thanks for the time.
All very helpful. Thanks for the time.
Just what should we keep our eyes on this year from the political front.
Operator: Our next question comes from the line of Jana Galan with Bank of America. You may proceed with your question.
Operator: Our next question comes from the line of Jana Galan with Bank of America. You may proceed with your question.
Hey, Jimmy Sean first on the other rental revenue side, Theres really two or three drivers to it are probably the ones that are most meaningful to call out.
Our next question comes from the line of Jana Galland with Bank of America. You may proceed with your question.
[Analyst] (Bank of America): Hi, thank you for taking my question. Following up on the renewal rates in Q4 in January, were there any specific markets that kind of drove the decline versus Q3? I know you mentioned layoffs in Boston. I'm just curious if there's any markets where you're willing to, you know, maybe negotiate a little bit more to protect occupancy.
Jana Galan: Hi, thank you for taking my question. Following up on the renewal rates in Q4 in January, were there any specific markets that kind of drove the decline versus Q3? I know you mentioned layoffs in Boston. I'm just curious if there's any markets where you're willing to, you know, maybe negotiate a little bit more to protect occupancy.
Legislation passed in Colorado.
That is impacting the ability to charge certain fees or cap certainties.
For other rental revenue in addition to that by the way we didn't call. This out on the Opex slide but it also limits our ability to recover some utility components as well, which is about a 15 basis point drag in terms of opex growth.
Hi. Thank you for taking my question. Um, following up on the renewal rates in the fourth quarter and January, were there any specific markets that kind of drove the decline versus the third quarter? I know you mentioned layoffs in Boston. I'm just curious if there are any markets where you're willing to, you know, maybe negotiate a little bit more to protect occupancy.
Sean Breslin: Yeah, good question. It's Sean. I would say, in general, what we see is a little bit of moderation in Q4, because seasonally, you're seeing the asking rents for move-ins come down, and there is a correlation between the renewal rates you can achieve and what, you know, think about it, what people see on the website for the, the deal down the street. So as you had softer move-ins, and usually a little bit softer in Q4 this past year, you see it trend down. So it was more broad-based than individual. I would say the markets where we probably negotiated more are the some of the softer markets that I mentioned earlier, in terms of the Mid-Atlantic, as an example, Boston and then Denver, probably the outliers, to the weaker side as compared to the average.
Sean J. Breslin: Yeah, good question. It's Sean. I would say, in general, what we see is a little bit of moderation in Q4, because seasonally, you're seeing the asking rents for move-ins come down, and there is a correlation between the renewal rates you can achieve and what, you know, think about it, what people see on the website for the, the deal down the street. So as you had softer move-ins, and usually a little bit softer in Q4 this past year, you see it trend down. So it was more broad-based than individual. I would say the markets where we probably negotiated more are the some of the softer markets that I mentioned earlier, in terms of the Mid-Atlantic, as an example, Boston and then Denver, probably the outliers, to the weaker side as compared to the average.
Something again, we called out on the slide and then the other one is new legislation in California, 14th 2014.
Yeah, good question, it's Sean. Um, I would say in general what we'd see is a little bit of moderation in Q4 because, seasonally, you're seeing the asking rents,
That provides residents with the option to opt out of a bulk Internet program to the center is another offering available at the community. We don't know exactly how many people will opt out but we have looked at other programs for residents have an opt out right like print control program et cetera and model that.
To reflect that type of outcome. Those are the two primary ones that are dragging out those couple of other small things, but those are the two big ones.
And then as it relates to kind of the forward looking in terms of the election, what I'd say is yes, we're keeping an eye on Massachusetts, I think I mentioned on the last call. The wave that ballot initiative was drafted is pretty onerous.
And there is a correlation between the renewal rates you can achieve and what you think about it, what people see on the website for the the deal down the street. So as you had softer movements and usually a little bit softer in Q4 this past year, you see it turned down. So it was more a broad-based than individual. I would say the markets where we probably negotiated more are the some of the softer markets that I mentioned earlier in terms of the Mid-Atlantic, as an example, Boston, and then Denver probably the outliers, um, to the weaker side as compared to the average.
[Analyst] (Bank of America): Thank you.
Jana Galan: Thank you.
Thank you.
Sean Breslin: Yep.
Sean J. Breslin: Yep.
Yep.
Operator: The next question comes from the line of Jamie Feldman with Wells Fargo. You may proceed.
Operator: The next question comes from the line of Jamie Feldman with Wells Fargo. You may proceed.
The next question comes from the line of Jamie Feldman with Wells Fargo. You may proceed.
Austin Wurschmidt: Great, thanks for taking the question. Can you talk more about the other income drag from the legislative activity last year?
Jamie Feldman: Great, thanks for taking the question. Can you talk more about the other income drag from the legislative activity last year?
And so onerous enough said already various political leaders.
In Massachusetts have already come out and said that they are.
Jamie Feldman: ... And then also, I guess, along those lines, I mean, it's a midterm election year, affordability is a hot topic. Any other initiatives you guys are watching closely? I know there's a Massachusetts potential ballot initiative. Just what should we keep our eyes on this year from the political front?
Jamie Feldman: ... And then also, I guess, along those lines, I mean, it's a midterm election year, affordability is a hot topic. Any other initiatives you guys are watching closely? I know there's a Massachusetts potential ballot initiative. Just what should we keep our eyes on this year from the political front?
Those two are completely opposed to it.
So we will have to go through a process here to potentially defeated.
But we do believe that relative to other initiatives, we felt like in California. This one probably is set up to be a little bit easier to defeat and.
Great, thanks for taking the question. Um, can you talk more about the other income drag from the legislative activity last year? And then, also along those lines, I mean, it's a midterm election year. Affordability is a hot topic. Any other initiatives you guys are watching closely? I know there's a Massachusetts potential ballot initiative. Just, what should we keep our eyes on this year from the political front?
Sean Breslin: Jamie, it's Sean. First, on the other rental revenue side, there's really two or three drivers to it. Probably the ones that are most meaningful to call out, legislation passed in Colorado that is impacting the ability to charge certain fees or cap certain fees. That's flowing through other rental revenue. In addition to that, by the way, we didn't call this out on the OpEx slide, but it also limits our ability to recover some utility components as well, which is about a 15 basis point drag in terms of OpEx growth. That wasn't something, again, we called out on the slide. And then the other one is new legislation in California, AB 1414, that provides residents with the option to opt out of a bulk internet program to the extent there is another offering available at the community.
Sean J. Breslin: Jamie, it's Sean. First, on the other rental revenue side, there's really two or three drivers to it. Probably the ones that are most meaningful to call out, legislation passed in Colorado that is impacting the ability to charge certain fees or cap certain fees. That's flowing through other rental revenue. In addition to that, by the way, we didn't call this out on the OpEx slide, but it also limits our ability to recover some utility components as well, which is about a 15 basis point drag in terms of OpEx growth. That wasn't something, again, we called out on the slide. And then the other one is new legislation in California, AB 1414, that provides residents with the option to opt out of a bulk internet program to the extent there is another offering available at the community.
And then other things we're keeping an eye on are things that are similar to what happened in Colorado, or California, where people are being thoughtful about not going directly add things like rent control.
Jimmy, Sean. First, on the other rental revenues, there's really two or three drivers to it. Probably the ones that are most meaningful to call out—um, legislation passed in Colorado.
But.
Wanted to make sure there is increased transparency and disclosure around the fees that you're charging for different things. How do you recover utilities et cetera. Those are the ones that we're keeping an eye on that.
National multi housing council as well as a lot of the various associations around the country.
Are very engaged in those types of activities to make sure people are aware of whats good legislation versus not.
Okay. Thank you for that.
And then I guess just going back to the comments on New Jersey, I think you had mentioned.
Ran through lower but costs are lower on new developments you have got a decent amount of lease up in those markets and I think in your latest started also in new Jersey.
Sean Breslin: We don't know exactly how many people will opt out, but we have looked at other programs where residents have an opt out right, like rent control programs, et cetera, and modeled it to reflect that type of outcome. Those are the two primary ones that are dragging it. There's a couple other small things, but those are the two big ones. And then as it relates to kind of the forward looking in terms of the election, what I'd say is, yes, we're keeping an eye on Massachusetts. I think I mentioned on the last call, the way that ballot initiative was drafted was pretty onerous. And so onerous enough that already, you know, various political leaders in Massachusetts have already come out and said that they are opposed to it, completely opposed to it.
Sean J. Breslin: We don't know exactly how many people will opt out, but we have looked at other programs where residents have an opt out right, like rent control programs, et cetera, and modeled it to reflect that type of outcome. Those are the two primary ones that are dragging it. There's a couple other small things, but those are the two big ones. And then as it relates to kind of the forward looking in terms of the election, what I'd say is, yes, we're keeping an eye on Massachusetts. I think I mentioned on the last call, the way that ballot initiative was drafted was pretty onerous. And so onerous enough that already, you know, various political leaders in Massachusetts have already come out and said that they are opposed to it, completely opposed to it.
That is impacting the ability to charge certain fees or cap certain fees that's going through other rental revenue. In addition to that, by the way, we didn't call this out on the Opex slide, but it also limits our ability to recover some utility components as well, which is about a 15 basis point drag in terms of Opex growth. That wasn't something, again, we called out on the slide. And then the other one is new legislation in California—AB 1414—that provides residents with the option to opt out of a bulk internet program, to the extent there is another offering available at the community.
And then your stats over the year on the weaker side of your markets can you just give more color on your expectations both on the lease up side.
Timing of getting those projects done and even the new start what gives you confidence to start there given there is so much supply coming in that market.
We don't know exactly how many people will opt out, but we have looked at other programs where residents have an opt-out right, like rent control programs, etc., and modeled it to reflect that type of outcome. Those are the two primary ones that are dragging it. There's a couple of small things, but those are the two big ones.
And then, as it relates to kind of the forward,
I guess I can start and then maybe Sean can talk as well about the stabilized portfolio.
It's not necessarily that much supply coming there may be a little more than what we've seen in the past, but it is.
Is still one of our strongest markets and.
Looking in terms of the election, what I'd say is, uh, yes, we're keeping an eye on Massachusetts. I think I mentioned on the last call, the way that ballot initiative was drafted was pretty onerous. Um, and so there was enough that already, you know, various political leaders—
It's not as strong this year as New York City.
It tends to.
Sean Breslin: So we will have to go through a process here to potentially defeat it. But we do believe that relative to other initiatives we've fought, like in California, this one probably is set up to be a little bit easier to defeat. And then other things we're keeping an eye on are things that are similar to what happened in Colorado or California, where people are being thoughtful about not going directly at things like rent control, but, you know, wanting to make sure there's increased transparency and disclosure around the fees that you're charging for different things, how do you recover utilities, et cetera. Those are the ones that we're keeping an eye on.
Sean J. Breslin: So we will have to go through a process here to potentially defeat it. But we do believe that relative to other initiatives we've fought, like in California, this one probably is set up to be a little bit easier to defeat. And then other things we're keeping an eye on are things that are similar to what happened in Colorado or California, where people are being thoughtful about not going directly at things like rent control, but, you know, wanting to make sure there's increased transparency and disclosure around the fees that you're charging for different things, how do you recover utilities, et cetera. Those are the ones that we're keeping an eye on.
B within New York City's Corbett, obviously, particularly northern New Jersey, So our lease ups are doing fine.
They are generally tracking on plan.
In general our lease ups actually picked up a little bit here, we saw in Q4 across our whole lease up book, which includes three or four in New Jersey average leases in Q4, which is slow quarter was about 20 and in January we actually did 26 across the nine deals or deals seven deals whenever we have.
Uh, in Massachusetts, they have already come out and said that they are, uh, opposed to it—completely opposed to it. Um, so we will have to go through a process here to potentially defeat it, but we do believe that relative to other initiatives we've fought, like in California, this one probably is set up to be a little bit easier to defeat.
And then other things we're keeping an eye on are things that are similar to what happened in Colorado or California, where people are being thoughtful about not going directly at things like rent control.
And lease up so.
We're continuing to get good traction, we basically will price to get the communities full before we have our first renewals so typically within a year to 15 months and.
Sean Breslin: The National Multifamily Housing Council, as well as a lot of the various associations around the country, are very engaged in those types of activities to make sure people are aware of what's good legislation versus not.
Sean J. Breslin: The National Multifamily Housing Council, as well as a lot of the various associations around the country, are very engaged in those types of activities to make sure people are aware of what's good legislation versus not.
What kind of adjust the pricing as needed to meet the pace that we're looking to me.
What we are seeing is like last year, we had a completion in new Jersey that finished.
But, you know, wanting to make sure there's increased transparency and disclosure around the fees that you're charging for different things—how do you recover utilities, etc.? Those are the ones that we're keeping an eye on, and the National Multi-Housing Council, as well as a lot of the various associations around the country, are very engaged in those types of activities to make sure people are aware of what's good legislation versus not.
Jamie Feldman: Okay, thank you for that. And then, I guess, just going back to the comments on New Jersey, I think you had mentioned, you know, rents are lower, but costs are lower on new developments. You've got a decent amount of lease up in those markets, and I think and your latest start is also in New Jersey, and then your stats over the year are on the weaker side of your markets. Can you just give more color on your expectations, both on the lease-up side, you know, timing of getting those projects done and even the new start? What gives you confidence to start there, given there is so much supply coming in that market?
Jamie Feldman: Okay, thank you for that. And then, I guess, just going back to the comments on New Jersey, I think you had mentioned, you know, rents are lower, but costs are lower on new developments. You've got a decent amount of lease up in those markets, and I think and your latest start is also in New Jersey, and then your stats over the year are on the weaker side of your markets. Can you just give more color on your expectations, both on the lease-up side, you know, timing of getting those projects done and even the new start? What gives you confidence to start there, given there is so much supply coming in that market?
I think 20 or 30 basis points above pro forma that's what we've seen in general over the last couple of years I would say, where we are today. The deals that we have currently in lease up they're tracking on pro forma so not necessarily beating pro form anymore, but but we still feel good that the initial spread that we underwrote is holding.
Okay, thank you for that.
Yes, Jamie just in terms of the specific deals we had three deals with lease up activity too.
Through Q4 into January so through Q4 kind of average monthly pace was around 20, a month when you get into January to three deals Avalon Parsippany to 32, West Windsor to 'twenty Avalon way into 'twenty, four which are pretty good numbers in January where it was also pretty darn coal so those.
And then I guess just going back to the comments on uh, New Jersey. I think you had mentioned, you know, rent or lower but costs are lower on new developments. You've got a decent amount of lease up in those markets and I think in your latest start is also in New Jersey. Um, and then your stats over the year, on the weaker side of your markets, can you just give more caller on your expectations? Both on the lease of side, um, you know, timing of of getting those projects done.
And even the new start, what gives you confidence to start there, given there is so much supply coming into that market?
Matt Birenbaum: I guess I can start, and then maybe Sean can talk as well about the stabilized portfolio. There's not necessarily that much supply coming there, maybe a little more than what we've seen in the past, but it is still one of our strongest markets. You know, it's not as strong this year as New York City, but you know, it tends to, you know, be within New York City's orbit, obviously, particularly northern New Jersey. So our lease-ups there are doing fine. They're generally tracking on plan. And in general, our lease-ups actually picked up a little bit here.
Matthew H. Birenbaum: I guess I can start, and then maybe Sean can talk as well about the stabilized portfolio. There's not necessarily that much supply coming there, maybe a little more than what we've seen in the past, but it is still one of our strongest markets. You know, it's not as strong this year as New York City, but you know, it tends to, you know, be within New York City's orbit, obviously, particularly northern New Jersey. So our lease-ups there are doing fine. They're generally tracking on plan. And in general, our lease-ups actually picked up a little bit here.
So pretty good numbers in our view above what we would've expected in January frankly.
Okay, that's good to hear.
Q2, <unk> to be indoors, and outdoors, I guess leasing space.
Thank you very much very true.
The next question comes from the line of Rich Hightower with Barclays. Please proceed.
Matt Birenbaum: We saw in Q4, across our whole lease-up book, which includes 3 or 4 in New Jersey, average leases in Q4, which is a slow quarter, was about 20, and in January, we actually did 26 across the 9 deals or 8 deals, 7 deals, whatever we have in lease-up. So, you know, we're continuing to get good traction. We basically will price to get the communities full before we have our first renewal, so typically within a year to 15 months. And, you know, we're, we'll kind of adjust the pricing as needed to meet the pace that we're looking to meet. What we are seeing is, like last year, we had a completion in New Jersey that finished, I think 20 or 30 basis points above pro forma.
Matthew H. Birenbaum: We saw in Q4, across our whole lease-up book, which includes 3 or 4 in New Jersey, average leases in Q4, which is a slow quarter, was about 20, and in January, we actually did 26 across the 9 deals or 8 deals, 7 deals, whatever we have in lease-up. So, you know, we're continuing to get good traction. We basically will price to get the communities full before we have our first renewal, so typically within a year to 15 months. And, you know, we're, we'll kind of adjust the pricing as needed to meet the pace that we're looking to meet. What we are seeing is, like last year, we had a completion in New Jersey that finished, I think 20 or 30 basis points above pro forma.
Hey, good afternoon guys.
I'm curious if you can give us an update on your views around.
The DC market and surrounding markets and the dose impact I think maybe it was a little bit understated as of a quarter ago, So where do we sit today with that.
Yes, rich, it's Sean I can start and then others can add if needed.
Actually picked up a little bit. Here we saw in Q4 across our holy sub book, which includes 3 or 4 in New Jersey, average, leases in Q4, which is slow quarter was about 20. And in January, we actually did 26, uh, across the, the, the 9 deals or 8 deals, 7 deals whatever we have in lease up. So, um, you know, we're continuing to get good traction. We, we basically will price
The fundamental issue has been you had loss of jobs. If you look at the last six months actual quantitative chewed up and everything we lost about 60000 jobs across the mid Atlanta.
That's the primary driver of the softness thanks for the question that people have asked and Theres not a 100% clear answer is is there more to come or not.
Matt Birenbaum: That's what we've seen in general over the last couple of years. I'd say where we are today, the deals that we have currently in lease-up, they're tracking on pro forma. So, not necessarily beating pro forma anymore, but, you know, we still feel good that the initial spread that we underwrote is holding.
Matthew H. Birenbaum: That's what we've seen in general over the last couple of years. I'd say where we are today, the deals that we have currently in lease-up, they're tracking on pro forma. So, not necessarily beating pro forma anymore, but, you know, we still feel good that the initial spread that we underwrote is holding.
What we're talking about this earlier in 2025 back in Q2, and even Q3 the data was certainly lagging.
And it takes time for it to filter through so we think we've got 25 relatively captured but there could be another revision here.
Sean Breslin: Yeah, Jamie, just in terms of the specific deals, we had three deals with lease-up activity through Q4 into January. So through Q4, kind of average monthly pace was around 20 a month. When you get into January, the three deals, Avalon Parsippany did 32, West Windsor did 20, Avalon Wayne did 24, which are pretty good numbers in January, where it was also pretty darn cold. So those are pretty good numbers in our view, above what we would have expected in January, frankly.
Sean J. Breslin: Yeah, Jamie, just in terms of the specific deals, we had three deals with lease-up activity through Q4 into January. So through Q4, kind of average monthly pace was around 20 a month. When you get into January, the three deals, Avalon Parsippany did 32, West Windsor did 20, Avalon Wayne did 24, which are pretty good numbers in January, where it was also pretty darn cold. So those are pretty good numbers in our view, above what we would have expected in January, frankly.
To get the communities full, uh, before we have our first renewals so typically within a year to 15 months and, um, you know, we're, we'll, we'll kind of adjust the pricing as needed to make meet the pace that we're looking to meet. I, what we are seeing is, um, like last year, we had a completion in New Jersey that finished, uh, I think 20 or 30 basis points above pro forma. That's what we've seen in general over the last couple years. I'd say where we are today. Uh, the deals that we have currently in lease up, they're tracking on proforma, so, uh, not necessarily beating ProForm anymore. But, uh, but you know, we still feel good that the initial spread that we underwrote is is holding.
Soon but we'll have a good feel for that I think the way to think about the mid Atlantic is obviously the impact of that has been meaningful in terms of demand in the market.
Well, if we feel a little bit better about is one as I mentioned earlier about a 60% reduction in deliveries in 2026 as compared to 2025.
Yeah, Jim. It's just in terms of the specific deals. We had 3 deals with Lisa activity to a Q4 in the January. So through Q4, kind of average monthly pace was around 20 a month.
Very large number so if we start to see at least some stabilization from the federal government and other major employers.
When you get down to January, the 3 deals Avalon precipitated—32 West, Windsor to 20, Avalon Wayne did 24—which are pretty good numbers in January, where it was also pretty darn cold. So those are pretty good numbers in our view, uh, above what we would have expected in January, frankly.
Or even some modest growth.
Jamie Feldman: Okay, that's good to hear. It's better to be indoors than outdoors, I guess, leasing space. Thank you very much.
Jamie Feldman: Okay, that's good to hear. It's better to be indoors than outdoors, I guess, leasing space. Thank you very much.
That kind of supply, particularly as we move through the back half of the year things should start to look better.
Okay, that's good to hear.
Better to be indoors and outdoors, I guess, leasing space.
Matt Birenbaum: Very true.
Matthew H. Birenbaum: Very true.
And if we see an uptick in job growth beyond what we've already forecasted.
Thank you very much. Very true.
Operator: The next question comes from the line of Rich Hightower with Barclays. Please proceed.
Operator: The next question comes from the line of Rich Hightower with Barclays. Please proceed.
It's potentially a market that could have some upside to it.
I think what's been noted is there needs to be a little more business confidence as it relates to make investments in a stable environment.
And the next question comes from the line of Rich Hightower with Barclays. Please proceed.
Rich Hightower: Hey, good afternoon, guys. Curious if you can give us an update on your views around, you know, the DC market and surrounding markets and the DOGE impact. I think, you know, maybe it was a little bit understated as of a quarter ago. So where do we sit today with that?
Rich Hightower: Hey, good afternoon, guys. Curious if you can give us an update on your views around, you know, the DC market and surrounding markets and the DOGE impact. I think, you know, maybe it was a little bit understated as of a quarter ago. So where do we sit today with that?
Consumer confidence as well just so they feel comfortable making those commitments, but I think.
Little bit of a TBD, but we're expecting basically the first half of this year to look a lot like the second half of last year.
Hey, good afternoon, guys. I'm curious if you can give us an update on your views around, you know, the DC market and surrounding markets, and the Dojan package. I think, you know, maybe it was a little bit understated as of a quarter ago. So, where do we sit today with that?
Sean Breslin: Yeah, Rich, it's Sean. I can start, and then others can add if needed. I mean, you know, the fundamental issue has been you had lots of jobs. If you look at the last 6 months, actually, with the data trued up and everything, we lost about 60,000 jobs across the Mid-Atlantic. You know, that's the primary driver of the softness. So I think the question that people have asked, and there's not a 100% clear answer, is, you know, is there more to come or not? When we were talking about this earlier in 2025, you know, back in Q2 and even Q3, you know, the data was certainly lagging, and it takes time for it to filter through.
Sean J. Breslin: Yeah, Rich, it's Sean. I can start, and then others can add if needed. I mean, you know, the fundamental issue has been you had lots of jobs. If you look at the last 6 months, actually, with the data trued up and everything, we lost about 60,000 jobs across the Mid-Atlantic. You know, that's the primary driver of the softness. So I think the question that people have asked, and there's not a 100% clear answer, is, you know, is there more to come or not? When we were talking about this earlier in 2025, you know, back in Q2 and even Q3, you know, the data was certainly lagging, and it takes time for it to filter through.
Okay. That's helpful. Sean and then I guess the second question is just maybe more general about the transaction environment. When we hear on your call in.
Some of your peers calls that market cap rates in many cases are 5% or even in the fours in certain markets.
I'm just curious what is driving that if we sort of segmented between capital flows that availability or underlying optimism around fundamentals. What do you think sort of driving that cap rate compression, where we sit today.
Yeah, Rich and Sean, I can start it and then I'll just going to add if needed. I mean, you know, the fundamental issue has been, you know, the loss of jobs, if you look at the last 6 months, actual with the data trued up and everything, we lost about 60,000 jobs across the Mid-Atlantic. You know, that's the primary driver of the softness. I think the question that people have asked and there's not a 100% clear answer is, you know, is there more to come or not? Um, what we were talking about this earlier in 2025, you know back in Q2 and even Q3 you know, the date of was certainly lagging.
Sean Breslin: So, you know, we, we think we got 25 relatively, you know, captured, but there could be another revision here, soon, but we'll, we'll have a good feel for that. I think the, the way to think about the Mid-Atlantic is, obviously, the impact of that has been meaningful in terms of demand in the market. What we, we feel a little bit better about is, one, as I mentioned earlier, about a 60% reduction in deliveries in 2026 as compared to 2025. That is a very large number. So if we start to see at least some stabilization from the federal government and other major employers, or even some modest growth, you know, without that kind of supply, particularly as we get to the back half of the year, things should start to look better.
Sean J. Breslin: So, you know, we, we think we got 25 relatively, you know, captured, but there could be another revision here, soon, but we'll, we'll have a good feel for that. I think the, the way to think about the Mid-Atlantic is, obviously, the impact of that has been meaningful in terms of demand in the market. What we, we feel a little bit better about is, one, as I mentioned earlier, about a 60% reduction in deliveries in 2026 as compared to 2025. That is a very large number. So if we start to see at least some stabilization from the federal government and other major employers, or even some modest growth, you know, without that kind of supply, particularly as we get to the back half of the year, things should start to look better.
Yes. This is Matt I guess I can take that one.
It is a little bit surprising, but we've been saying that really for the last couple of years. So.
I think you've got a couple of different cross currents here and I know a bunch of folks were just added NMFC last week.
So probably the biggest recent shifts in favor of supporting cap rates, where they are is the debt markets.
Very competitive.
Very deep and liquid and so.
Spreads have come in quite a bit and so.
For buyers out there, they're levered buyers, they definitely have access to lower cost and larger check size that and they did a year or two ago.
That is to some extent counteracted by a little bit of headwinds in the numerator.
Sean Breslin: And if we see an uptick in job growth beyond what we've already forecasted, then it's potentially a market that could have some upside to it. I think what Ben noted is there needs to be a little more, you know, business confidence as it relates to making investments in a stable environment and consumer confidence as well, just so they feel comfortable making those commitments. But I think it's a little bit of a TBD, but we're expecting basically the first half of this year to look a lot like the second half of last year.
Sean J. Breslin: And if we see an uptick in job growth beyond what we've already forecasted, then it's potentially a market that could have some upside to it. I think what Ben noted is there needs to be a little more, you know, business confidence as it relates to making investments in a stable environment and consumer confidence as well, just so they feel comfortable making those commitments. But I think it's a little bit of a TBD, but we're expecting basically the first half of this year to look a lot like the second half of last year.
Which is obviously the NOI being capped with relatively flattish NOI growth.
Um and it takes time for it to filter through. So yeah, we we think we got 25 relatively you know captured but there could be another revision here, um soon. But we'll we'll have a good feel for that. I think the the way to think about the Mid-Atlantic is obviously the impact of that has been meaningful in terms of demand and the market. Um well we we feel a little bit better about is 1 as I mentioned earlier, about a 60% reduction in deliveries in 2026 as compared to 2025, that is a very large number. So if we start to see at least some stabilization from the federal government and other major employers, um, or even some modest growth, you know, without that kind of Supply, particularly as we speak in the back, half of the Year, things should start to look better. Um and if we see an uptick in job, growth beyond what we've already forecasted that it's it's potentially a market that could have some upside to it. Uh, I think what been noted is there need
Positive in some markets negative and others.
And then the third piece of it is just investor sentiment and equity.
And there is a lot of equity that's on the sidelines that is anxious to get in and we've seen that really growing for the last couple of years, there's dry powder out there. It's looking to be deployed there is a lot of people, whose livelihoods depend on it so.
Needs to be a little more, you know, business confidence as it relates to making investments in a stable environment, and consumer confidence as well—just so they feel comfortable making those commitments. But I think it's, um, a little bit of a TBD, but we're expecting basically the first half of this year to look a lot like the second half of last year.
Rich Hightower: Okay. That's helpful, Sean. And then, I guess, a second question is just maybe more general about the transaction environment. You know, when we hear on your call and, and you know, some of your peers' calls, that market cap rates, in many cases, are 5% or even, you know, in the 4s, in certain markets. You know, just curious, what is driving that? If we sort of segment it, you know, between capital flows, debt availability, or underlying optimism around fundamentals, what do you think is sort of driving that cap rate compression where we sit today?
Rich Hightower: Okay. That's helpful, Sean. And then, I guess, a second question is just maybe more general about the transaction environment. You know, when we hear on your call and, and you know, some of your peers' calls, that market cap rates, in many cases, are 5% or even, you know, in the 4s, in certain markets. You know, just curious, what is driving that? If we sort of segment it, you know, between capital flows, debt availability, or underlying optimism around fundamentals, what do you think is sort of driving that cap rate compression where we sit today?
What we continue to see us as bifurcated market, where for the assets. They check the boxes. The bid is deep if it is robust and buyers are optimistic enough that they will underwrite through.
Another year or so of operating softness to what they expect to be a pretty robust recovery.
Two or three years from now.
But then there are there are.
Another subset of assets where.
They are only going to transact if there is.
Wider spread between the debt rate and the going in.
Okay, that that's awful. Sean. And then I guess a second question is just maybe more General about the transaction environment, you know, when we hear on your call and and you know, some of your peers calls that market cap rates in many cases are 5% or even you know, in the fours, um, in certain markets, um, you know, just curious. What is driving that if we sort of segment it, you know, between Capital flows, debt availability or underlying optimism around fundamentals. What do you think? Sort of driving that cap rate compression where we sit today?
Yield or cap rate and a lot of those are the deals that are not transacting.
Matt Birenbaum: Yeah, this is Matt. I guess I can take that one. It is a little bit surprising, but we've been saying that really for the last couple of years. So, I think you've got a couple of different crosscurrents here. I know a bunch of folks were just out at NMHC last week. So probably the biggest recent shift in favor of supporting cap rates where they are is the debt markets, which have become very competitive, very deep and liquid, and so spreads have come in quite a bit. And so, you know, for buyers out there that are levered buyers, they definitely have access to lower costs and larger check size debt than they did a year or two ago.
Matthew H. Birenbaum: Yeah, this is Matt. I guess I can take that one. It is a little bit surprising, but we've been saying that really for the last couple of years. So, I think you've got a couple of different crosscurrents here. I know a bunch of folks were just out at NMHC last week. So probably the biggest recent shift in favor of supporting cap rates where they are is the debt markets, which have become very competitive, very deep and liquid, and so spreads have come in quite a bit. And so, you know, for buyers out there that are levered buyers, they definitely have access to lower costs and larger check size debt than they did a year or two ago.
Very helpful. Thanks, Rich maybe my Richmond. One addition to it just to give you a little bit more market color I mean, we're not overly active on the buying front right now, but obviously, we're attuned do selectively look at deals.
And the types of assets that we would focus on people are still stepping up and paying cap rates that are in the $4 seven 4% type of range.
Okay awesome. Thank you.
The next question comes from the line of John Kim with BMO Capital markets. You May proceed with your question.
Thank you I know, it's not your biggest market, but when you look at your expectations for same store revenue in Denver.
Matt Birenbaum: You know, that is, to some extent, counteracted by a little bit of headwinds in the numerator, you know, which is obviously the NOI being capped with, you know, relatively flattish NOI growth, you know, positive in some markets, negative in others. And then, you know, the third piece of it is just investor sentiment and equity, and there is a lot of equity that's on the sidelines that's anxious to get in. And we've seen that, you know, really growing for the last couple of years. There's dry powder out there that's looking to be deployed. There's a lot of people whose livelihoods depend on it.
Matthew H. Birenbaum: You know, that is, to some extent, counteracted by a little bit of headwinds in the numerator, you know, which is obviously the NOI being capped with, you know, relatively flattish NOI growth, you know, positive in some markets, negative in others. And then, you know, the third piece of it is just investor sentiment and equity, and there is a lot of equity that's on the sidelines that's anxious to get in. And we've seen that, you know, really growing for the last couple of years. There's dry powder out there that's looking to be deployed. There's a lot of people whose livelihoods depend on it.
Obviously lower than other.
Pension market and what you have delivered last year.
What's driving that for you.
Yes, John this is Sean.
As I mentioned in my prepared remarks I think.
2025 was a tough year for the Denver market.
Excuse me there was essentially zero job growth and significant deliveries.
This year, what we're expecting is very modest job growth consistent with the outlook that then provided earlier, but there is still another 9000 units to come so you've got some hangover inventory from 2025 that was delivered but not absorb and then you add another 9000 units to that with very modest job growth.
Matt Birenbaum: So, you know, what we continue to see is this bifurcated market, where for the assets that check the boxes, the bid is deep, the bid is robust, and, you know, buyers are optimistic enough that they will underwrite through, you know, another year or so of operating softness to what they expect to be a pretty robust recovery, you know, two or three years from now. But then there are another subset of assets where, you know, they're only gonna transact if there is a wider spread between the debt rate and the going-in yield or cap rate. And, you know, a lot of those are the deals that are not transacting.
Matthew H. Birenbaum: So, you know, what we continue to see is this bifurcated market, where for the assets that check the boxes, the bid is deep, the bid is robust, and, you know, buyers are optimistic enough that they will underwrite through, you know, another year or so of operating softness to what they expect to be a pretty robust recovery, you know, two or three years from now. But then there are another subset of assets where, you know, they're only gonna transact if there is a wider spread between the debt rate and the going-in yield or cap rate. And, you know, a lot of those are the deals that are not transacting.
Uh, so probably the biggest recent shift in favor of supporting cap rates where they are is the debt markets which has become very uh, competitive um, very deep in liquid. And so uh spreads have come in quite a bit and so um, you know, for buyers out there that are levered buyers, uh, they definitely have access to lower costs and larger check size debt than they did a year or 2 ago. Um, you know, you would that is to some extent counteracted by uh, a little bit of headwinds in the numerator. Uh, you know, which is obviously the noi being capped with, you know, relatively flattish, noi growth, you know, positive in some markets negative and others. Uh, and then, you know, the third piece of it is just investor sentiment and Equity. Uh, and there is a lot of equity that's on the sidelines. That's anxious to get in. And we've seen that, you know, really growing for the last couple of years. There's dry powder out there that's looking to be deployed. There's a lot of people who's
No.
That's the simple story of just too much supply given the relatively anemic demand and thus the near term outlook for that market.
And if this market more vulnerable to take layoffs and others.
Livelihoods depend on it. So um, you know what we continue to see is this bifurcated Market, where for the assets that check the boxes, the bid is deep, the bid is robust and you know, buyers are optimistic enough that they will underwrite through you know another year or so of operating softness to what they expect to be a pretty robust recovery. You know 2 or 3 years from now. Uh but then there are there are another subset of assets where uh you know they're only going to transact if there is a
I'm not sure on a relative basis, it would be given the concentration of tech jobs in Denver.
A wider spread between the debt rate and the going-in, uh, yield or cap rate. And, you know, a lot of those are the deals that are not transacting.
Rich Hightower: Very helpful. Thanks.
Rich Hightower: Very helpful. Thanks.
Sean Breslin: Rich, maybe my one addition to it, just to give you a little bit more market color. I mean, we're not overly active on the buying front right now, but obviously, we're attuned and, you know, do selectively look at deals. And the types of assets that we would focus on, you know, people are still stepping up and paying cap rates that are in the 4.7, 4.8 type of range.
Sean J. Breslin: Rich, maybe my one addition to it, just to give you a little bit more market color. I mean, we're not overly active on the buying front right now, but obviously, we're attuned and, you know, do selectively look at deals. And the types of assets that we would focus on, you know, people are still stepping up and paying cap rates that are in the 4.7, 4.8 type of range.
Some other regions that you were in like Seattle, and Northern California per se.
It would have exposure, but I'm not sure the punches above its weight class in terms of.
Exposure to tech.
Right. Okay. Thank you.
Okay.
Our next question comes from Nick <unk> with Scotiabank you May proceed with your question.
Very helpful, thanks, Rich. My Rich, me, I want addition to it. Just to give you a little bit more market color. I mean, we're not overly active on the buying front right now, but I’d say we're attuned and, you know, do selectively look at deals. And the types of assets that we would focus on, you know, people are still stepping up and paying cap rates that are in the 4.7% to 4.8% type of range.
Rich Hightower: Okay, awesome. Thank you.
Rich Hightower: Okay, awesome. Thank you.
Okay, awesome. Thank you.
Hi, Thanks, I just wanted to go back to the decision to have lower development starts this year, how much of that was driven by <unk>.
Operator: The next question comes from the line of John Kim with BMO Capital Markets. You may proceed with your question.
Operator: The next question comes from the line of John Kim with BMO Capital Markets. You may proceed with your question.
The next question comes from the line of John Kim with BMO Capital Markets. You may proceed with your question.
John Kim: Thank you. I know it's not your biggest market, but when you look at your expectations for same-store revenue in Denver, it's noticeably lower than other expansion markets and what you had delivered last year. So I'm wondering what's driving that for you?
John P. Kim: Thank you. I know it's not your biggest market, but when you look at your expectations for same-store revenue in Denver, it's noticeably lower than other expansion markets and what you had delivered last year. So I'm wondering what's driving that for you?
Focus on improving year after slower growth given some of the sort of near term dilutive aspects of development and I guess, specifically I think Kevin you kind of saying that there was some benefit then to 2027 from doing that so if you could just flush that out thank you.
Thank you. I know it's not your biggest market, but when you look at your expectations for Cymstar revenue in Denver, it's noticeably lower than other expansion markets and what you had delivered last year. So I'm wondering what's driving that for you.
Sean Breslin: Yeah, John, this is Sean. As I mentioned in my prepared remarks, I think 2025 was a tough year for the Denver market. Excuse me. There was essentially zero job growth and significant deliveries. This year, what we're expecting is very modest job growth, consistent with the outlook that Ben provided earlier, but there's still another 9,000 units to come. So you've got some hangover inventory from 2025 that was delivered but not absorbed, and then you add another 9,000 units to that with very modest job growth.
Sean J. Breslin: Yeah, John, this is Sean. As I mentioned in my prepared remarks, I think 2025 was a tough year for the Denver market. Excuse me. There was essentially zero job growth and significant deliveries. This year, what we're expecting is very modest job growth, consistent with the outlook that Ben provided earlier, but there's still another 9,000 units to come. So you've got some hangover inventory from 2025 that was delivered but not absorbed, and then you add another 9,000 units to that with very modest job growth.
Sure Nick this is Kevin.
I'll offer a few comments others may want to add some additional color I would say really really wasn't a factor.
Yeah, John, this is Sean. Um, as I mentioned in my, uh, prepared remarks, I think,
At all in our decision about the development start volume for this year our decision in that regard as we discussed earlier was really as Matt outlined driven by our own sense about the opportunity set that we have within our own portfolio of what we think we might be able to achieve through our DSP program and the related funding costs in terms of the economic value add that.
2025 was a tough year for the Denver market. Excuse me, there was essentially zero job growth and significant deliveries. This year, what we're expecting is very modest job growth, consistent with the outlook that’s been provided earlier, but there's still another 9,000 units to come. So you've got
That activity will provide for our shareholders over time.
In terms of the dynamics that I referenced in my scripted remarks in regard to slides 14, and 15 I think what we're trying to provide there is a little bit more transparency to investors on.
Kevin O'Shea: ... that's a simple story of just too much supply, given the relatively anemic demand, and that's the near-term outlook for that market.
Sean J. Breslin: ... that's a simple story of just too much supply, given the relatively anemic demand, and that's the near-term outlook for that market.
Some hangover inventory from 2025 that was delivered, but not absorbed. And then you add another 9,000 units to that with very modest job growth. That's a simple story of just too much supply given the relatively anemic demand, and that's the near-term outlook for that market.
John Kim: And is this market more vulnerable to tech layoffs than others?
John P. Kim: And is this market more vulnerable to tech layoffs than others?
The really the several dynamics that.
And is this market more vulnerable to tech layoffs than others?
Kevin O'Shea: I'm not sure. On a relative basis, it would be, given the concentration of tech jobs in Denver, you know, is below some other regions that we're, you know, we're in, like Seattle or Northern California, per se. It would have exposure, but I'm not sure that it punches above, you know, its weight class in terms of, exposure to tech.
Sean J. Breslin: I'm not sure. On a relative basis, it would be, given the concentration of tech jobs in Denver, you know, is below some other regions that we're, you know, we're in, like Seattle or Northern California, per se. It would have exposure, but I'm not sure that it punches above, you know, its weight class in terms of, exposure to tech.
Determine development earnings, which is not merely the NOI yield and development NOI that we receive from development activity as it stabilizes and the associated funding costs, but also the impact of capitalized interest as it flows through that seems to be a dynamic that based on our own discussions with investors.
<unk> hasn't always been uniformly well understood and so we thought we use this as an opportunity to provide a little bit more clarity on that for investors, but in terms of informing our capital allocation decisions.
Uh, I'm not sure on a relative basis it would be, given the concentration of tech jobs in Denver, you know, is below some other regions. And if you were in, like, Seattle or Northern California, per se, um, it would have exposure, but I'm not sure that it punches above, you know, its weight class in terms of, uh, exposure to tech.
John Kim: Right. Okay, thank you.
John P. Kim: Right. Okay, thank you.
Right. Okay. Thank you.
Operator: Our next question comes from Nick Yulico with Scotiabank. You may proceed with your question.
Operator: Our next question comes from Nick Yulico with Scotiabank. You may proceed with your question.
Our next question comes from Nick Ulo with Scotia Bank. You may proceed with your question.
Nick Yulico: Thanks. I just wanted to go back to the decision to have lower development starts this year. How much of that was driven by, you know, a focus on improving your FFO growth, given some of the sort of near-term, you know, dilutive aspects of development? And I guess specifically, I think, Kevin, you were kind of saying that there was some benefit then to 2027 from doing that. So if you could just flesh that out. Thank you.
Nick Yulico: Thanks. I just wanted to go back to the decision to have lower development starts this year. How much of that was driven by, you know, a focus on improving your FFO growth, given some of the sort of near-term, you know, dilutive aspects of development? And I guess specifically, I think, Kevin, you were kind of saying that there was some benefit then to 2027 from doing that. So if you could just flesh that out. Thank you.
Not really a factor at all it's been a dynamic that we've had to reflect in our GAAP financials really over our 30 year history and its kind of sometimes it's been a plus and sometimes it's been a negative but at the margin. It all washes out and really what drives our core <unk> growth over time is not only what happens at the same store book, but importantly in this regard.
The underlying profitability of our development activity, which continues to be quite attractive and and so for US I think it's really just looking at the incremental yields versus the incremental funding costs and the opportunity set that's driving our our sizing the opportunity for development starts this year.
Uh thanks, I just want to go back to the decision to have lower development starts this year. How how much of that was driven by? You know, a focus on improving your SFO growth, uh, given some of the sort of near-term, you know, dilute of aspects of development and and I guess specifically I I think Kevin you're kind of saying that there was some benefit then to 2027 from doing that. So if you could just flush that out, thank you.
Kevin O'Shea: Sure, Nick, this is Kevin. I'll offer a few comments. Others may wanna add some additional color. I'd say really, it really wasn't a factor, you know, at all in our decision about the development start volume for this year. Our decision in that regard, as we discussed earlier, was really, as Matt outlined, driven by our own sense about the opportunity set that we have within our own portfolio, what we think we might be able to achieve through our DFP program, and the related funding costs in terms of the economic value add that that activity will provide for our shareholders over time.
Kevin O'Shea: Sure, Nick, this is Kevin. I'll offer a few comments. Others may wanna add some additional color. I'd say really, it really wasn't a factor, you know, at all in our decision about the development start volume for this year. Our decision in that regard, as we discussed earlier, was really, as Matt outlined, driven by our own sense about the opportunity set that we have within our own portfolio, what we think we might be able to achieve through our DFP program, and the related funding costs in terms of the economic value add that that activity will provide for our shareholders over time.
Okay. Thanks, and then I guess my second question is if we sustain this higher interest rate world, where you're having that impact from capitalized interest versus <unk>.
Borrowing costs harder to raise maybe common equity where you want to raise rates.
Is there is there an approach perhaps are going towards.
The company has considered doing a fun doing more JV is a way to source capital also.
Kevin O'Shea: I think in terms of the dynamics that I referenced in my scripted remarks, in regard to kind of slides 14 and 15, I think what we're trying to provide there is a little bit more transparency to investors on the several dynamics that determine development earnings, which is not merely the, you know, the NOI yield and development NOI that we receive from development activity as it stabilizes and the associated funding costs, but also the impact of capitalized interest as it flows through. That seems to be a dynamic that, based on our own discussions with investors, hasn't always been uniformly well understood, and so we thought we'd use this as an opportunity to provide a little bit more clarity on that for investors. But in terms of informing our capital allocation decisions, that's not really a factor at all.
Kevin O'Shea: I think in terms of the dynamics that I referenced in my scripted remarks, in regard to kind of slides 14 and 15, I think what we're trying to provide there is a little bit more transparency to investors on the several dynamics that determine development earnings, which is not merely the, you know, the NOI yield and development NOI that we receive from development activity as it stabilizes and the associated funding costs, but also the impact of capitalized interest as it flows through. That seems to be a dynamic that, based on our own discussions with investors, hasn't always been uniformly well understood, and so we thought we'd use this as an opportunity to provide a little bit more clarity on that for investors. But in terms of informing our capital allocation decisions, that's not really a factor at all.
Minimize some of this earnings dilution that is coming from the development on the balance sheet.
Yes, Nick it's Ben.
Less less your last point, there about dealing with the earnings dynamic.
But in terms of your broader question is private capital is something that we think about yes, we do think about private capital as being a tool in our toolbox.
I actually have.
A large joint venture via Invesco with a state pension fund for a number of our New York City assets people remember back long enough in Avalon base history. We did have funds at that point nothing we're actively working on at this point sort of the channels that we've generally thought about one would be in and around our portfolio allocation of.
Kevin O'Shea: It's been a dynamic that we've had to reflect in our GAAP financials, really over our 30-year history, and it's kind of, sometimes it's been a plus, and sometimes it's been a negative, but at the margin, it all washes out. And really, what drives our Core FFO growth over time is, not only what happens in the same-store book, but importantly in this regard, the underlying profitability of our development activity, which continues to be quite attractive. And, and so for us, I think it's really just looking at the, the incremental yield versus the incremental funding costs, and the opportunity set that's driving our, our, our sizing of the opportunity for development starts this year.
Kevin O'Shea: It's been a dynamic that we've had to reflect in our GAAP financials, really over our 30-year history, and it's kind of, sometimes it's been a plus, and sometimes it's been a negative, but at the margin, it all washes out. And really, what drives our Core FFO growth over time is, not only what happens in the same-store book, but importantly in this regard, the underlying profitability of our development activity, which continues to be quite attractive. And, and so for us, I think it's really just looking at the, the incremental yield versus the incremental funding costs, and the opportunity set that's driving our, our, our sizing of the opportunity for development starts this year.
<unk>, where there could be a pool of assets, where we want to monetize.
Economic value adds at that activity, will provide for our shareholders over time, I think, in terms of the dynamics that I referenced in my scripted remarks on, in regard to, kind of, slide 14 and 15. I think what we're trying to provide there is a little bit more transparency to investors on, um, really the several dynamics that, um, determine development earnings, which is not merely the, you know, the NOI yield and development NOI that we receive from development activity as it stabilizes and the associated funding costs, but also the impact of capitalized interest as it flows through. That seems to be a dynamic that, based on our own discussions with investors, hasn't always been uniformly well understood, and so we thought we'd use this as an opportunity to provide a little bit more clarity on that for investors. But in terms of informing our capital allocation decisions, that's not really a factor at all. It's been a dynamic that we've had to reflect in our GAAP financials.
Monetize a portion of those assets, but importantly retain the operating density in a market those could be a pool that we look to put into a joint venture or a private capital vehicle and the second bucket would be in and around external growth right. As we think about funding potentially a larger pie of activity.
With capital that's in addition to our mothership capital.
And maybe Nick just to kind of add a little bit more color on what we can do year in year out from an investment standpoint without accessing the equity markets or levering up the way we tend to think about our capacity.
Really over our 30-year history and it's kind of sometimes it's been a plus and sometimes it's been a negative but at the margin, it all washes out and really what drives our core upflow growth over time is uh not only what happens at the same store book. But importantly in this regard um the underlying profitability of our development activity which continues to be quite attractive and and so for us I think it's really just looking at the the incremental yields versus the incremental funding costs and the opportunities that that's driving our our our sizing of the opportunity for development services.
Start this year.
Nick Yulico: Okay, thanks. And then I guess my second question is, if we, you know, if we stay in this, you know, higher interest rate world, where you're having that impact from capitalized interest versus, you know, borrowing costs, harder to raise maybe common equity where you wanna raise it, is there an approach, perhaps, of going towards... You know, I don't know if the company's considered doing a fund, doing more JVs as a way to source capital also, you know, minimize some of this earnings dilution that is coming from the development on the balance sheet?
Nick Yulico: Okay, thanks. And then I guess my second question is, if we, you know, if we stay in this, you know, higher interest rate world, where you're having that impact from capitalized interest versus, you know, borrowing costs, harder to raise maybe common equity where you wanna raise it, is there an approach, perhaps, of going towards... You know, I don't know if the company's considered doing a fund, doing more JVs as a way to source capital also, you know, minimize some of this earnings dilution that is coming from the development on the balance sheet?
In terms of what we describe as leverage neutral plenty capacity some of free cash flow.
Average EBIT growth and asset sales before we hit our distribution of obligation that typically averages around $1 billion a quarter a year. So if you think about what we can do on the investment front. Each year typically is around 1 billion a quarter of development starts.
More give or take that we can do year in year out at the opportunity set there so by starting $800 million. This year, we are quite deliberately allow ourselves room and capacity to do more makes sense either in the form of a buyback activity or development activities. So we do have that flexibility.
Okay. Thanks. And then I guess my second question is, if we, you know, if we stay in this, you know, higher interest rate world, where you having that impact from capitalized interest versus you know, borrowing costs harder to raise, maybe common Equity, where you want to raise it. Um, is there is there an approach perhaps of going towards, you know, I don't know if the company's considered doing a fund doing more JVS as a way to Source Capital. Also, um, you know, minimize some of this earnings dilution that is coming from the development on the balance sheet.
Benjamin Schall: Yeah, Nick, it's been less your last point there about, you know, dealing with the earnings dynamic. But in terms of your broader question, you know, is private capital something that we think about? Yes, we - I do think about private capital as being a tool in our toolbox. We actually have a large joint venture via Invesco with a state pension fund for a number of our New York City assets. People remember back long enough in AvalonBay's history, we did have funds at that point. Nothing we're actively working on at this point.
Benjamin W. Schall: Yeah, Nick, it's been less your last point there about, you know, dealing with the earnings dynamic. But in terms of your broader question, you know, is private capital something that we think about? Yes, we - I do think about private capital as being a tool in our toolbox. We actually have a large joint venture via Invesco with a state pension fund for a number of our New York City assets. People remember back long enough in AvalonBay's history, we did have funds at that point. Nothing we're actively working on at this point.
Okay. Thanks, guys I appreciate it.
Our next question comes from the line of Anthony <unk> with Jpmorgan. You May proceed with your question.
Alright, great. Thanks.
First question relates to just a series of initiatives and announcements coming out of the white house to to prompt more for sale housing activity assumes.
Benjamin Schall: Sort of the channels that, you know, we've generally thought about, one would be, you know, in and around a portfolio allocation objective, where there could be a pool of assets where we wanna monetize, monetize a portion of those assets, but importantly, retain the operating density in a market. Those could be a pool that we look to put into a joint venture or a private capital vehicle. And the second, you know, bucket would be in and around external growth, right? As we think about funding, potentially a larger pie of activity, with capital, that's in addition to our mothership capital.
Benjamin W. Schall: Sort of the channels that, you know, we've generally thought about, one would be, you know, in and around a portfolio allocation objective, where there could be a pool of assets where we wanna monetize, monetize a portion of those assets, but importantly, retain the operating density in a market. Those could be a pool that we look to put into a joint venture or a private capital vehicle. And the second, you know, bucket would be in and around external growth, right? As we think about funding, potentially a larger pie of activity, with capital, that's in addition to our mothership capital.
Any of those that you think might have cheat or that you're watching more closely in terms of it impacting.
Your portfolio potentially prompting move outs or having implications back on branch.
Yeah, Nick it's it's been um less less your last point there about, you know, dealing with the the earnings Dynamic. Um, but in terms of your broader question you know is private Capital something that we think about. Um yes we I do think about private Capital was being a tool in our toolbox. Um, we actually have a a large joint venture via Invesco with a state pension fund, uh, for a number of our New York City assets. People remember back long enough and Avalon based history, we did have funds at that point. Um, nothing we're actively working on at this point, sort of the channels that, you know, we've generally thought about 1 would be, you know, in and around a portfolio allocation objective, where there could be a pool of assets, where we want to monetize um monetize a portion of those assets. But importantly, retain the operating density in a market.
Something we were monitoring watching but the short answer to your question is no.
Really our focus at the at the National and federal level is working with trade associations like NMFC.
Support supply base solutions, yes, we very much see ourselves as a creator of housing.
Kevin O'Shea: Maybe, Nick, just to kind of add a little bit more color on what we can do year in, year out from an investment standpoint without accessing the equity markets or levering up. The way we tend to think about our capacity is in terms of what we describe as a leveraged funding capacity through the sum of free cash flow, leveraged EBITDA growth, and asset sales, before we hit our distribution obligation. That typically averages around $1.25 billion a year. If you think about what we can do on the investment front each year, typically is around $1 billion a quarter of development starts, more give or take, that we can do year in, year out, if the opportunity set's there.
Kevin O'Shea: Maybe, Nick, just to kind of add a little bit more color on what we can do year in, year out from an investment standpoint without accessing the equity markets or levering up. The way we tend to think about our capacity is in terms of what we describe as a leveraged funding capacity through the sum of free cash flow, leveraged EBITDA growth, and asset sales, before we hit our distribution obligation. That typically averages around $1.25 billion a year. If you think about what we can do on the investment front each year, typically is around $1 billion a quarter of development starts, more give or take, that we can do year in, year out, if the opportunity set's there.
Those could be a pool that we look to put into a joint venture or, or a private capital vehicle. Um, and the second, you know, bucket would be in and around external growth, right? As we think about funding potentially a larger pie of activity, um, with capital that's in addition to our mothership capital.
Most of our developments.
We provide 20% to 30% affordable housing as part of that that typically comes with the approval requirements. So finding ways that we both individually at Avalon Bay and as an industry can help support further supply is where we've been focusing our efforts.
And maybe, Nick, just to kind of add a little bit more color on what we can do year in, year out.
From an investment standpoint, without accessing the equity markets or levering up the way we tend to think about, our capacity is in terms of what we describe as leverage with money capacity through some of free cash flow, leveraged EBITDA to growth, and asset sales, before we hit our distribution obligation.
Okay, and just second one.
Can you give us a bad debts and <unk> and 25, and then also what's in your guidance for 'twenty six.
Kevin O'Shea: So by starting $800 million this year, we are quite deliberately allowing ourselves room and capacity to do more, if it makes sense, either in the form of our buyback activity or development activity. So we do have that flexibility.
Kevin O'Shea: So by starting $800 million this year, we are quite deliberately allowing ourselves room and capacity to do more, if it makes sense, either in the form of our buyback activity or development activity. So we do have that flexibility.
Yes happy to do that essentially where we ended up is right you said fourth quarter specifically.
Yes <unk>.
Over here.
Okay.
<unk> and then before year end.
That typically averages around a billion and a quarter a year. So, if you think about what we can do in the investment front, each year typically is around a billion and a quarter of development starts. Um, more give or take that we can do year in year out at the opportunity sets there. So by starting $800 million this year. We are quite deliberately allowing ourselves room and capacity to do more if it makes sense. Either, uh, in the form of uh, our buyback activity or development activity. So we do have that flexibility.
Nick Yulico: Okay. Thanks, guys. Appreciate it.
Nick Yulico: Okay. Thanks, guys. Appreciate it.
To get some sense as to what 26 years and whether that's a headwind tailwind.
Okay. Thanks guys. Appreciate it.
Operator: Our next question comes from the line of Anthony Paolone with J.P. Morgan. You may proceed with your question.
Operator: Our next question comes from the line of Anthony Paolone with J.P. Morgan. You may proceed with your question.
Okay got you, yes, so at a high level. So basically for 2025, we ended at one six our forecast is one 4% for 2026.
Our next question comes from the line of Anthony Pallone with JP Morgan. You may proceed with your question.
Anthony Paolone: Great, thanks. First question relates to just the series of initiatives and announcements coming out of the White House to prompt more for-sale housing activity, it seems. You know, any of those that you think might have teeth or that you're watching more closely in terms of it impacting your portfolio and potentially prompting move-outs or having implications back on rents?
Anthony Paolone: Great, thanks. First question relates to just the series of initiatives and announcements coming out of the White House to prompt more for-sale housing activity, it seems. You know, any of those that you think might have teeth or that you're watching more closely in terms of it impacting your portfolio and potentially prompting move-outs or having implications back on rents?
As it relates to the fourth quarter, which is normally a slightly higher quarter than average that came in at like 163.
Okay. Thank you.
Yep.
Our next question comes from the line of Hendel, St. Jude with Mizuho Securities. Please proceed with your question.
Uh, great thanks. Um, first question, uh, relates to just the, the series of of initiatives and announcements coming out of the White House to, to prompt more for sale housing activity. It seems, you know, any of those that you think might have teeth or that you're watching more closely uh, in terms of an impacting uh your portfolio and potentially prompting move outs or having implications back on rents.
Sean Breslin: Something we're monitoring and watching, but the short answer to your question is no. Really, our focus, you know, at the national and federal level is working with trade associations like NMHC to support supply-based solutions. You know, we very much see ourselves as a creator of housing. Most of our developments, we provide, you know, 20 to 30% affordable housing as part of that, that typically comes with the approval requirements. So finding ways that we both individually at AvalonBay and as an industry can help support further supply is where we've been focusing our efforts.
Sean J. Breslin: Something we're monitoring and watching, but the short answer to your question is no. Really, our focus, you know, at the national and federal level is working with trade associations like NMHC to support supply-based solutions. You know, we very much see ourselves as a creator of housing. Most of our developments, we provide, you know, 20 to 30% affordable housing as part of that, that typically comes with the approval requirements. So finding ways that we both individually at AvalonBay and as an industry can help support further supply is where we've been focusing our efforts.
Hey, guys. Thanks for taking my questions two quick ones here. So first wanted to.
Little bit color on San Francisco, Seattle, maybe you could talk a bit more about your expectations for tech employment growth there near term.
Lots of lay up announcements of late AI headlines software condos in the market.
It seems like the situation is still evolving maybe it gets better maybe not but curious how you factor that into your your employment outlook and rent expectations both market. Thanks.
Okay.
Yes, Sean.
I would tell you is.
The pace that we saw in the back half of 2025 is sort of what we expect to continue particularly for the first half of 2006 and that has been noted.
Watching, but the short answer to your question is no. Um, you really are focused, you know, at the at the national and federal level is working with trade associations, like nmhc to uh, support Supply based Solutions. You know, we very much see ourselves as a creator of housing. Um, most of our developments, um, we provide, you know, 20 to 30% affordable housing as part of that that typically comes with the approval requirements. Um, so finding ways that we both individually that Avalon Bay and is an industry can help support further Supply uh is where we've been focusing, our efforts
Anthony Paolone: Okay. And just second one, can you give us bad debts in Q4 and 25, and then also what's in your guidance for 26?
Anthony Paolone: Okay. And just second one, can you give us bad debts in Q4 and 25, and then also what's in your guidance for 26?
Slide uptick in job growth for the.
Forecast from nave in the back half of the year say on lost jobs in the back half of 2025.
Okay, and just second one. Um, can you give us bad debts in '24 and '25, and then also what's in your guidance for '26?
And then across the Bay area is relatively flat.
Sean Breslin: Yeah, Tony, happy to do that. Essentially, where we ended up is right, you said fourth quarter specifically?
Sean J. Breslin: Yeah, Tony, happy to do that. Essentially, where we ended up is right, you said fourth quarter specifically?
San Francisco is has a San Jose and the East Bay, where a little bit behind so that's sort of what's embedded in the forecast right now what's important to note.
Uh, yes. Only happy to do that. Essentially, where we ended up is right for you. You said fourth quarter specifically.
Anthony Paolone: Yeah, Q4, just to kind of get a-
Anthony Paolone: Yeah, Q4, just to kind of get a-
Sean Breslin: Or you mean the year?
Sean J. Breslin: Or you mean the year?
Yeah, 42. Just to kind of...
Anthony Paolone: Q4 for Q4 and then the full year in order to get some sense as to what 2026 is and whether that's a, you know, headwind, tailwind.
Anthony Paolone: Q4 for Q4 and then the full year in order to get some sense as to what 2026 is and whether that's a, you know, headwind, tailwind.
In addition to actual job growth is wage growth, though and wage growth continues to be pretty good it's moderating a bit but still pretty healthy.
Sean Breslin: Okay, got you. Yeah. So, at a high level, so basically for 2025, we ended at 1.6. Our forecast is 1.4% for 2026. As it relates to the fourth quarter, which is normally a slightly higher quarter than average, that came in at, like, 1.63.
Sean J. Breslin: Okay, got you. Yeah. So, at a high level, so basically for 2025, we ended at 1.6. Our forecast is 1.4% for 2026. As it relates to the fourth quarter, which is normally a slightly higher quarter than average, that came in at, like, 1.63.
Clear for Q4, and then the full year, in order to get some sense as to what '26 is, and whether that's a, you know, headwind or tailwind.
Certainly healthier than.
What you might expect that's implied by our move in rent change, but it's probably more consistent with what you would expect on the renewal side. So that's a key component that we monitor to make sure that existing resident capacity is there to pay higher rents.
Okay, gotcha. Yeah. So, um, at a high level—so basically, for 2025, we ended at 1.6%. Our forecast is 1.4% for 2026.
As it relates to the fourth quarter, which is normally a slightly higher quarter than average, that came in at like 1.63.
Okay.
That's good color I appreciate that.
Anthony Paolone: Okay, thank you.
Anthony Paolone: Okay, thank you.
One more if I would.
Okay, thank you.
Sean Breslin: Yep.
Sean J. Breslin: Yep.
It sounds like one of the messages from this call is this year.
Yep.
Operator: Our next question comes from the line of Handel St. Juste with Mizuho Securities. Please proceed with your question.
Operator: Our next question comes from the line of Handel St. Juste with Mizuho Securities. Please proceed with your question.
Is a bit of a transition year the setup for next year.
It looks more excitingly.
Handel St. Juste: Hey, guys, thanks for taking my questions. Two quick ones here. So first one is a little bit color on San Francisco, Seattle. Maybe you could talk a bit more about your expectations for tech employment growth there near term. Lots of layoff announcements, late, AI headlines, software corners in the market. Seems like the situation is still evolving. Maybe it gets better, maybe not, but curious how you factor that into your, your, employment outlook and rent expectations for those markets. Thanks.
Haendel St. Juste: Hey, guys, thanks for taking my questions. Two quick ones here. So first one is a little bit color on San Francisco, Seattle. Maybe you could talk a bit more about your expectations for tech employment growth there near term. Lots of layoff announcements, late, AI headlines, software corners in the market. Seems like the situation is still evolving. Maybe it gets better, maybe not, but curious how you factor that into your, your, employment outlook and rent expectations for those markets. Thanks.
Oh, next question comes from the line of Handel St. Juice, with Mizzou host security. Please proceed with your question.
At this point you mentioned inflection in your rent into the back half of year more development contribution.
Hey guys, uh, thanks for taking my questions. Two quick ones here. So, first one is—
So I guess overall.
Our assessment.
Yes.
Is that a fair assessment and would you say.
How excited are you about the earnings inflection potential for the portfolio into 2007, and then maybe some comments on the sunbelt expansion market and I expect those to play out over the course of this year and next year. Thanks.
Yeah.
Alright, there is theres a lot in there I'll comment on part of it and just given time, we can circle back with you.
A little bit of color on San Francisco, Seattle—maybe you could talk a bit more about your expectations for tech employment growth there near-term. Uh, lots of layoff announcements of late, AI headlines, software calendars in the market. Uh, seems like the situation is still evolving. Maybe it gets better, maybe not. But curious how you factor that into your, uh, employment outlook and rent expectations for those markets. Thanks.
Sean Breslin: Yeah, Handel St. Juste, what I would say is, the pace that we saw in the back half of 2025 is sort of what we expect to continue, particularly through the first half of 2026. And then, as Ben noted, a slight uptick in job growth per the forecast from NABE in the back half of the year. You know, Seattle lost jobs in the back half of 2025. And then across the Bay Area is relatively flat. You know, San Francisco is ahead, but San Jose and the East Bay were a little bit behind. So that's sort of what's embedded in the forecast right now. What's important to note, in addition to actual job growth, is wage growth, though, and wage growth continues to be pretty good. It's, it's moderating a bit, but still pretty healthy.
Sean J. Breslin: Yeah, Handel St. Juste, what I would say is, the pace that we saw in the back half of 2025 is sort of what we expect to continue, particularly through the first half of 2026. And then, as Ben noted, a slight uptick in job growth per the forecast from NABE in the back half of the year. You know, Seattle lost jobs in the back half of 2025. And then across the Bay Area is relatively flat. You know, San Francisco is ahead, but San Jose and the East Bay were a little bit behind. So that's sort of what's embedded in the forecast right now. What's important to note, in addition to actual job growth, is wage growth, though, and wage growth continues to be pretty good. It's, it's moderating a bit, but still pretty healthy.
In terms of the year.
I really would bifurcate it in terms of the internal growth aspects of it the operating.
Fundamentals.
Our softer than we expected six months ago.
Yeah. And, uh, Sean, what I would say is the pace that we saw in the back half of 2025 is sort of what we expect to continue, particularly through the first half of '26. And then, as has been noted, a slight uptick in job growth.
Suppliers for sure going to be a tailwind and.
In a soft slash uncertain demand environment. Our view is the markets that are going to be the relative winners are going to be those with the lowest levels of supply and we feel well positioned there both in the near term.
And for the foreseeable future, particularly given our suburban coastal concentrations and then on the external growth side, Yes, I mean you.
Sean Breslin: Certainly healthier than, you know, what you might expect that's implied by our move-in rent change, but it's probably more consistent with what you would expect on the renewal side. So that's a key component, that we monitor to make sure that existing resident capacity is there to pay higher rents.
Sean J. Breslin: Certainly healthier than, you know, what you might expect that's implied by our move-in rent change, but it's probably more consistent with what you would expect on the renewal side. So that's a key component, that we monitor to make sure that existing resident capacity is there to pay higher rents.
Consciously did provide more visibility to investors.
In our presentation about the ramping of activity both development NOI and development earnings as we progress through 2026, and 2027 and that was intentional.
For the forecast, from Nab, in the back, half of the year, you know, Seattle lost, jobs in the back half of 2025. Um, and then across the bay area is relatively flat. Um, you know, San Francisco was ahead but San Jose and the East Bay were a little bit behind. So that's sort of what's embedded in the forecast right now. Uh, what's important to note um in addition to actual job growth is wage growth though and wage growth continues to be pretty good. It's it's moderating a bit if it's so pretty healthy. Um, so certainly healthier than, you know, what, you might expect that's implied by our movement change, but it's probably more consistent with what you would expect on the renewal side.
So, that's a key component that we monitor to make sure that existing resident capacity is there to pay higher rents.
Handel St. Juste: That's a good color. Appreciate that. One more, if I would. Sounds like one of the messages from this call is, this year is a bit of a transition year. The setup for next year looks more exciting, at least at this point. You mentioned inflection in your rent into the back half of the year, more development contribution. So I guess for overall fair assessment, you know, is that a fair assessment? And would you say, or how excited are you about the earnings inflection potential for the portfolio into 2027? And then maybe some comments on the Sun Belt expansion market, how you expect those to play out over the course of this year and next year. Thanks.
Haendel St. Juste: That's a good color. Appreciate that. One more, if I would. Sounds like one of the messages from this call is, this year is a bit of a transition year. The setup for next year looks more exciting, at least at this point. You mentioned inflection in your rent into the back half of the year, more development contribution. So I guess for overall fair assessment, you know, is that a fair assessment? And would you say, or how excited are you about the earnings inflection potential for the portfolio into 2027? And then maybe some comments on the Sun Belt expansion market, how you expect those to play out over the course of this year and next year. Thanks.
Thank you.
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Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
Good afternoon. Thanks for taking my question can you provide a breakdown of the performance between urban and suburban and just does that vary by the east Coast West Coast.
That's good color, I appreciate that. Um, 1 more if I would, um, it sounds like 1 of the messages from this call, is this year is is a bit of a transition year. Uh, the setup for next year. Uh, looks looks more exciting at least at this at this point. Um, so I guess for overall,
Sunbelt markets. Thanks.
Okay.
Okay.
Michael just so I understand what you're referring to you're talking about revenue growth Youre talking about rent change kind of what are you exactly thinking there yes.
Their assessment—um, is that a fair assessment? And would you say, um, or how excited are you about the earnings and election potential for the portfolio into '27? And then maybe some comments on the Sunbelt expansion market—how you expect those to play out in the course of this year and next year? Thanks.
Sean Breslin: All right. There's a lot in there. I'll comment on part of it, and just given time, we can circle back with you, Handel. You know, in terms of the year, you know, I really would bifurcate it in terms of sort of the internal growth aspects of it. You know, the operating fundamentals, you know, are softer than, you know, we expected six months ago. You know, supply is for sure going to be a tailwind. And, you know, in a soft/uncertain demand environment, you know, our view is the markets that are going to be the relative winners are going to be those with the lowest levels of supply, and we feel well positioned there, both in the near term, and for the foreseeable future, particularly given our suburban coastal concentrations.
Sean J. Breslin: All right. There's a lot in there. I'll comment on part of it, and just given time, we can circle back with you, Handel. You know, in terms of the year, you know, I really would bifurcate it in terms of sort of the internal growth aspects of it. You know, the operating fundamentals, you know, are softer than, you know, we expected six months ago. You know, supply is for sure going to be a tailwind. And, you know, in a soft/uncertain demand environment, you know, our view is the markets that are going to be the relative winners are going to be those with the lowest levels of supply, and we feel well positioned there, both in the near term, and for the foreseeable future, particularly given our suburban coastal concentrations.
The range I guess, just trying to understand kind of the performance in these markets.
Yeah, what I can tell you in terms of I'll call it sub market type for rent change.
For the last couple of quarters.
The urban portfolio has outperformed our suburban portfolio.
One thing guests keep in mind in that regard is it doesn't mean in absolute sense that those markets are healthier you have to look at each one because in some cases, what's inflating that rent change and some of the urban Submarkets is that they're less bad that they were a year ago.
All right, there's a, there's a lot in there. I'll, I'll comment on part of it and just giving time. Um, we can Circle back with you, um, Handel, you know, in terms of the year, you know, I I really would buy for kada, in terms of sort of the internal growth aspects of it, you know, the operating, uh, fundamentals. Um, you know, our our softer than, you know, we expected 6 months ago. Um, you know, Supply is for sure. Um, going to be a tailwind and, you know, in a, a soft
Sean Breslin: Then on the external growth side, yes, when you know, we consciously did provide more visibility to investors in our presentation about the ramping of activity, both development NOI and development earnings as we progress through 2026 and 2027, and that was intentional.
Sean J. Breslin: Then on the external growth side, yes, when you know, we consciously did provide more visibility to investors in our presentation about the ramping of activity, both development NOI and development earnings as we progress through 2026 and 2027, and that was intentional.
Concessions for three months another two months.
8% effective rent change right. There. So I would just keep that in mind as you think about it. So some markets are pretty healthy San Francisco's looking very healthy some of it is driven but it's also a good lease rate growth.
New York City is quite positive within our places probably like Seattle, where it's still pretty soft, but concessions aren't as bad as they used to be so just keep that in mind.
I'm concentrations and then on the external growth side. Yes. I mean you you know we consciously did provide more visibility to investors um in our presentation about the ramping of activity uh both development. Noi and development earnings as we progress through 2026 and 2027 and and that was intentional.
Handel St. Juste: Got it. Thank you.
Haendel St. Juste: Got it. Thank you.
Thank you.
Operator: ... Before we move on to our next question, as a final reminder, if you'd like to enter the queue for a question, please press star one on your telephone keypad. Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
Operator: ... Before we move on to our next question, as a final reminder, if you'd like to enter the queue for a question, please press star one on your telephone keypad. Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
Got it thanks for that and my follow up question is starts in the fourth quarter included a kenzo a townhome community. So could there be more opportunities in these types that may be a competitive advantage for avalonbay over other builders.
Before we move on to our next question, as a final reminder, if you'd like to enter the queue for a question, please press star 1 on your telephone keypad.
Michael Goldsmith: Good afternoon. Thanks a lot for taking my question. Can you kind of provide a breakdown of the performance between urban and suburban, and, and just does that vary by the East Coast, West Coast, a-and the Sun Belt markets? Thanks.
Michael Goldsmith: Good afternoon. Thanks a lot for taking my question. Can you kind of provide a breakdown of the performance between urban and suburban, and, and just does that vary by the East Coast, West Coast, a-and the Sun Belt markets? Thanks.
Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
Yes, Matt I would say yes.
I appreciate the call out there we do in our 26th starts we do have another townhome BTR community planned and we do have another console plan. So.
Good afternoon. Thanks a lot for taking my question. Uh, can you kind of provide a breakdown of the performance between urban and suburban, and just does that vary by the East Coast, West Coast, and the Sun Belt markets? Thanks.
Matt Birenbaum: Michael, just so I understand what you're referring to, are you talking about revenue growth? Are you talking about rent change? Kind of, what are you exactly thinking there?
Matthew H. Birenbaum: Michael, just so I understand what you're referring to, are you talking about revenue growth? Are you talking about rent change? Kind of, what are you exactly thinking there?
We are we have a wider variety of product offering to the market and what a typical merchant builder would provide and as I mentioned in my opening remarks, we are trying to build to where we think future demand is headed and also access some of those may be underappreciated niches.
Michael Goldsmith: Yeah, just the rent change. I guess just trying to understand the kind of performance in these markets.
Michael Goldsmith: Yeah, just the rent change. I guess just trying to understand the kind of performance in these markets.
Um, and Michael, just so I understand what you're referring to—you’re talking about revenue growth. He's talking about rent change. Kind of, what are you exactly thinking there? Yeah, just, uh, just the rentage, I guess. Just trying to understand that, kind of the performance in these markets.
Matt Birenbaum: Yeah, what I can tell you in terms of, I'll call it submarket type for rent change, for the last couple of quarters, the urban portfolio has outperformed our suburban portfolio. One thing you have to keep in mind in that regard is it doesn't mean in absolute sense that those submarkets are healthier. You have to look at each one, because in some cases, what's inflating that rent change in some of the urban submarkets is that they are less bad than they were a year ago. You have concessions for three months, another two months, you know, that's a, that's an 8% effective rent change right there. So I would just keep that in mind as you think about it. So some markets are pretty healthy. San Francisco's looking very healthy. Some of that is concession driven, but it's also good lease rate growth.
Matthew H. Birenbaum: Yeah, what I can tell you in terms of, I'll call it submarket type for rent change, for the last couple of quarters, the urban portfolio has outperformed our suburban portfolio. One thing you have to keep in mind in that regard is it doesn't mean in absolute sense that those submarkets are healthier. You have to look at each one, because in some cases, what's inflating that rent change in some of the urban submarkets is that they are less bad than they were a year ago. You have concessions for three months, another two months, you know, that's a, that's an 8% effective rent change right there. So I would just keep that in mind as you think about it. So some markets are pretty healthy. San Francisco's looking very healthy. Some of that is concession driven, but it's also good lease rate growth.
Each also gets a little bit of an earlier question about kind of how.
Are we able to generate yields higher than maybe others.
That's all part of it.
Thank you very much good luck in 2026.
Yeah, but I can tell you in terms of—I'll call it submarket type for rent change—for the last couple of quarters, the urban portfolio has outperformed our suburban portfolio.
Thanks.
Our next question comes from the line of Alex Kim with Zelman and Associates you May proceed.
Hey, guys. Thanks for taking my question just picking up maybe backing quickly off of that last one.
You highlighted <unk> as a strategic growth channel.
Just curious if you could provide more color on some of the yield differentials between encountered prana versus traditional multifamily and then how did operating metrics like rank growth turnover occupancy from here.
Yes.
It's Matt I can speak to that a little bit and Sean may want to as well, it's really too early to tell kind of longer term I don't think the products been around there long enough. We have a a subset of our portfolio of its rental townhomes that we've had for quite a while and those have generally tended to perform as well as or maybe slightly better today in the communities to which they are attached.
Matt Birenbaum: New York City is quite positive, but then there are places probably like Seattle, where it's still pretty soft, but concessions aren't as bad as they used to be. Just keep that in mind.
Matthew H. Birenbaum: New York City is quite positive, but then there are places probably like Seattle, where it's still pretty soft, but concessions aren't as bad as they used to be. Just keep that in mind.
Um, one thing you have to keep in mind in that regard is, it doesn't mean in an absolute sense that those markets are healthier. You have to look at each one, because in some cases, what's inflating that rent change in some of the urban submarkets is that they are just less bad than they were a year ago. You had concessions for three months, another two months—you know, that's an 8% effective rent change right there. So I would just keep that in mind if you think about it. Some markets are pretty healthy—San Francisco's looking very healthy. Some of that is concession-driven, but it's also good lease rate growth. New York City is quite positive, but then there are places, probably like Seattle, where it's still pretty soft, but concessions aren't as bad as they used to be, so just keep that in mind.
Michael Goldsmith: Got it. Thanks for that. And my follow-up question is, starts in the Q4 included a condo and a townhome community. So could there be more opportunities in these types that may be a competitive advantage for AvalonBay over other builders?
Michael Goldsmith: Got it. Thanks for that. And my follow-up question is, starts in the Q4 included a condo and a townhome community. So could there be more opportunities in these types that may be a competitive advantage for AvalonBay over other builders?
<unk>.
We have a number of communities, where we might have 2030, 40, Townhomes and 200 300 flat we have a few that are 100% townhome, but.
Got it. So, thanks for that. And my follow-up question is, uh, starts in the fourth quarter included, a Kanzo and a townhome community. So, could there be more opportunities in these types that may be a competitive advantage for AvalonBay over other builders?
Matt Birenbaum: Yes, Matt, I, I would say yes. I appreciate the call out there. We do in our 26 starts have another townhome BTR community planned, and we do have another condo planned. So, we are, you know, we have a wider variety of product offerings to the market than what a typical merchant builder would provide. And as I mentioned in my opening remarks, we are trying to build to where we think future demand is headed, and also access some of those maybe underappreciated niches, which also gets a little bit at an earlier question about, you know, kind of how are we able to generate yields higher than maybe others, and, you know, that's all part of it.
Matthew H. Birenbaum: Yes, Matt, I, I would say yes. I appreciate the call out there. We do in our 26 starts have another townhome BTR community planned, and we do have another condo planned. So, we are, you know, we have a wider variety of product offerings to the market than what a typical merchant builder would provide. And as I mentioned in my opening remarks, we are trying to build to where we think future demand is headed, and also access some of those maybe underappreciated niches, which also gets a little bit at an earlier question about, you know, kind of how are we able to generate yields higher than maybe others, and, you know, that's all part of it.
But it does open up additional sites.
And it also we believe is aligned for future growth better one of the things we've said going all the way back to our Investor day is in some ways. We feel like our portfolio is better positioned for the next decades worth of demand in the last decades worth of demand. So.
There's not a whole lot of long term history, yet the yields are kind of similar.
The expense the expense profile is different it's less.
At the community level more of the home individual home level.
If you've got an actual dedicated BTR community, but.
We do think that it is a niche which is kind of where the puck is headed in terms of future demand and so we are very consciously trying to increase the proportion of our portfolio that will access that demand. They do tend to be older residents that do tend to stay longer and over time that should drive greater profitability.
Uh yeah it's Matt I I would say yes uh appreciate uh the call out there. We do in our 26 starts. We do have another uh town home, BTR Community planned and we do have another kanso plan. So, um, we are, you know, we have a wider variety of product offering to the market than what a typical Merchant Builder would provide. And as I mentioned, in my opening remarks, we are trying to build to where we think future demand is headed and also access some of those maybe underappreciated niches. Uh, which also gets a little bit of an earlier question about, you know, kind of how are we able to generate yield higher than maybe others, uh, and you know, that's all part of it.
Michael Goldsmith: Thank you very much. Good luck in 2026.
Michael Goldsmith: Thank you very much. Good luck in 2026.
Thank you very much. Good luck in 2026.
Matt Birenbaum: Thanks.
Matthew H. Birenbaum: Thanks.
Operator: Our next question comes from the line of Alex Kalmus with Zelman & Associates. You may proceed.
Operator: Our next question comes from the line of Alex Kalmus with Zelman & Associates. You may proceed.
Alex Kalmus: Hey, guys. Thanks for taking my question. Just piggying off, piggybacking quickly off of that last one. You've highlighted BTR as a strategic growth channel. Just curious if you could provide more color on some of the yield differentials between the townhome product versus traditional multifamily, and then, you know, how do operating metrics like rent growth, turnover, occupancy compare?
Alex Kim: Hey, guys. Thanks for taking my question. Just piggying off, piggybacking quickly off of that last one. You've highlighted BTR as a strategic growth channel. Just curious if you could provide more color on some of the yield differentials between the townhome product versus traditional multifamily, and then, you know, how do operating metrics like rent growth, turnover, occupancy compare?
Our next question comes from the line of Alex Kim with Zelman & Associates. You may proceed.
Got it thanks for your time.
Our next question comes from Alexander Goldfarb with Piper Sandler You May proceed.
Okay, Hey, thank you and good afternoon.
Kevin just a question for you on your <unk>.
Commercial paper program.
Traditionally you guys have kept your credit line balance at zero, you've done pre funding for the development program, but since you launched it.
Hey guys, thanks for taking my question, and just picking up Piggy backing quickly, off of that, last 1. Um, you highlighted BTR, the Strategic growth Channel. Um, just curious if you could provide more color on some of the yield differentials between in the town and product versus traditional multi family and then you know how they're operating metrics like rank growth. Turnover occupancy, compare.
Matt Birenbaum: Yeah. Hey, it's Matt. I can speak to that a little bit, and Sean may want to as well. It's really too early to tell, kind of longer term. I don't think the product's been around there long enough. We have a subset of our portfolio that's rental townhomes that we've had for quite a while, and those have generally tended to perform as well as or maybe slightly better than the communities to which they're attached. You know, we have a number of communities where we might have 20, 30, 40 townhomes and 200, 300 flats. We have a few that are 100 percent townhome. But it does open up additional sites, and it also, we believe, is aligned for future growth better.
Matthew H. Birenbaum: Yeah. Hey, it's Matt. I can speak to that a little bit, and Sean may want to as well. It's really too early to tell, kind of longer term. I don't think the product's been around there long enough. We have a subset of our portfolio that's rental townhomes that we've had for quite a while, and those have generally tended to perform as well as or maybe slightly better than the communities to which they're attached. You know, we have a number of communities where we might have 20, 30, 40 townhomes and 200, 300 flats. We have a few that are 100 percent townhome. But it does open up additional sites, and it also, we believe, is aligned for future growth better.
CP program a year ago, it's really yes, definitely you've taken advantage of it and it was it sort of jumped about 500 million from third quarter to fourth quarter. So is this sort of what youre using to help fund the development program or is this more like a warehousing for future bond deals I know you guys.
Just did a bond deal, but just trying to understand the CIP, the CP program, which youre actively using versus traditionally the line of credit which was almost always zero at quarter close.
Sure. Thanks, Alex.
Matt Birenbaum: One of the things we've said, you know, going all the way back to our Investor Day, is in some ways we feel like our portfolio is better positioned for the next decade's worth of demand than the last decade's worth of demand. So, there's not a whole lot of long-term history yet. The yields are kind of similar. You know, the expense profile is different. You know, it's, it's less, at the community level, more at the home, individual home level, if you've got an actual dedicated BTR community. But, you know, we do think that it is a niche which is kind of where the puck is headed in terms of future demand, and so we are very consciously trying to increase the proportion of our portfolio that will access that demand. They do tend to be older residents.
Matthew H. Birenbaum: One of the things we've said, you know, going all the way back to our Investor Day, is in some ways we feel like our portfolio is better positioned for the next decade's worth of demand than the last decade's worth of demand. So, there's not a whole lot of long-term history yet. The yields are kind of similar. You know, the expense profile is different. You know, it's, it's less, at the community level, more at the home, individual home level, if you've got an actual dedicated BTR community. But, you know, we do think that it is a niche which is kind of where the puck is headed in terms of future demand, and so we are very consciously trying to increase the proportion of our portfolio that will access that demand. They do tend to be older residents.
So it's Kevin.
Yes.
In terms of our commercial paper program, we've had it for a little while as you may recall, we increased the size of it when we renewed our line.
About nine months ago, and we did so very consciously because.
Not only because of the.
Relative to practice in short term debt cost today, but importantly, because we felt there was room in our debt capital structure, particularly at this point in the cycle for more floating rate debt.
And our other floating rate debt in our capital structure has slowly winnow down to about $400 million to where it is today and we'd like to have more commercial paper just happens to represent the most attractive form of floating rate debt. So our view was that we wanted to make more room in our capital structure for a little more than <unk>.
Matt Birenbaum: They do tend to stay longer, and over time, that should drive greater profitability.
Matthew H. Birenbaum: They do tend to stay longer, and over time, that should drive greater profitability.
Uh, you know, the expense, the expense profile is different, you know, it's it's less uh at the community level more at the home individual home level. Uh, if you've got an actual dedicated BTR Community but, um, you know, we do think that it is a niche which is kind of where the puck is headed in terms of future demand. And so we are very consciously trying to increase the proportion of our portfolio that will access that demand they do tend to be older residents that do tend to stay longer and over time that should drive greater profitability.
Alex Kalmus: Got it. Thanks for the time.
Alex Kim: Got it. Thanks for the time.
Got it. Thanks for the time.
$40 million of floating rate debt in the commercial paper was the most efficacious way of getting that and so we upsized, our commercial paper and so youre seeing us probably run with a.
Operator: Our next question comes from Alexander Goldfarb with Piper Sandler. You may proceed.
Operator: Our next question comes from Alexander Goldfarb with Piper Sandler. You may proceed.
Our next question comes from Alexander Goldfarb with Piper Sandler. You may proceed.
Alexander Goldfarb: Hey, thank you, and good afternoon. Kevin, just a question for you on your commercial paper program. Traditionally, you guys have kept your credit line balance at zero. You know, you've done pre-funding for the development program, but since you've launched the CP program a year ago, it's really... definitely you've taken advantage of it, and, you know, it, it was—it sort of jumped about $500 million from Q3 to Q4. So is this sort of what you're using to help fund the development program, or is this more like a warehousing for future bond deals? I know you guys just did a bond deal, but just trying to understand the CP program, which you're actively using, versus traditionally the line of credit, which was almost always zero at quarter close.
Alexander Goldfarb: Hey, thank you, and good afternoon. Kevin, just a question for you on your commercial paper program. Traditionally, you guys have kept your credit line balance at zero. You know, you've done pre-funding for the development program, but since you've launched the CP program a year ago, it's really... definitely you've taken advantage of it, and, you know, it, it was—it sort of jumped about $500 million from Q3 to Q4. So is this sort of what you're using to help fund the development program, or is this more like a warehousing for future bond deals? I know you guys just did a bond deal, but just trying to understand the CP program, which you're actively using, versus traditionally the line of credit, which was almost always zero at quarter close.
A slightly higher level of persistent commercial paper balances at.
Hey, uh, thank you and good afternoon. Uh, Kevin, just a question for you on your, uh,
As a consequence of that so it's probably probably going to run at least in the $4 million to $500 million range. Most every time and flex up a little bit more or less depending upon what's going on in our funding of the business.
Okay and then the second question is on stock buybacks versus development I think our numbers. We have you trading at sort of a high fives implied cap and you spoke about sort of low sixes.
On a development yield basis, it would almost seem like right now the stock buyback is the more accretive use of capital, but as you mentioned in the guidance. There is nothing planned for stock buyback. So can you just talk a little bit more about that especially given your liquidity. It would just seem like stock buybacks would be more advantageous in the near term given the current.
Commercial paper program. Uh, traditionally you guys have kept your credit line balanced at zero. You know, you've done pre-funding for the development program. But since you launched this uh, CP program a year ago, it's really you know definitely you've taken advantage of it and you know it was it sort of jumped about 500 million from third quarter to to fourth quarter. So is this sort of what you're using to help fund the development program or is this more like a warehousing for future Bond deals? I know you guys just did a bond deal, but just trying to understand the CIP, the CP program, which you're actively using versus traditionally, the line of credit which was
Almost always zero, uh, at quarter close.
Matt Birenbaum: Sure. Thanks, Alex. So it's Kevin. Yeah, in terms of our commercial paper program, we've had it for a little while. As you may recall, we increased the size of it-
Matthew H. Birenbaum: Sure. Thanks, Alex. So it's Kevin. Yeah, in terms of our commercial paper program, we've had it for a little while. As you may recall, we increased the size of it-
Yes, Matt.
Between the two.
Sure.
So Alex I'll say, a couple of things <unk> been may want to chime in just from our point of view.
Our shares are critically attractively priced right now probably an implicit cap rate in the low 6% range. If you look at our development start activity that we've planned for 2026.
Kevin O'Shea: ... when we renewed our line, about nine months ago. And we did so very consciously because, you know, not only because of the, you know, the relative attractiveness of short-term, debt costs today, but importantly because we felt there was room in our debt capital structure, particularly at this point in the cycle, for more floating rate debt. And our other floating rate debt in our capital structure has slowly winnowed down to about $400 million to where it is today, and we'd like to have more, and commercial paper just happens to represent the most attractive form of floating rate debt.
Kevin O'Shea: ... when we renewed our line, about nine months ago. And we did so very consciously because, you know, not only because of the, you know, the relative attractiveness of short-term, debt costs today, but importantly because we felt there was room in our debt capital structure, particularly at this point in the cycle, for more floating rate debt. And our other floating rate debt in our capital structure has slowly winnowed down to about $400 million to where it is today, and we'd like to have more, and commercial paper just happens to represent the most attractive form of floating rate debt.
The expected yields on that are higher at six 5% to 7%.
So for us.
The opportunity to development.
Or buyback activity isn't necessarily buying binary for us we can do both and as you saw last year. We did exactly that so we do believe that the $800 million that we programmed in for this year starts are attractive. We also recognize that potentially doing additional buyback activity may makes sense for us.
Sure. Thanks, Alex. Um, so it's Kevin. Uh, yeah. We, in terms of our commercial paper program, we've had it for a little while. As you may recall, we increased the size of it when we renewed our line, um, about nine months ago. And we did so very consciously because, um, you know, um, not only because of the, you know, the relative attractiveness of the short-term, uh, debt costs today, but importantly because we felt there was room in our debt capital structure, particularly at this point in the cycle, for more floating rate debt and our other—
Kevin O'Shea: So our view was that we wanted to make more room in our capital structure for a little more than $400 million of floating rate debt, and the commercial paper was the most efficacious way of getting that. And so we upsized our commercial paper, and so you're seeing us probably run with a slightly higher level of persistent commercial paper balances, as a consequence of that. So it's probably gonna run at least in the $400 to 500 million range most every time, it flex up a little bit more or less, depending on what's going on in our funding of the business.
Kevin O'Shea: So our view was that we wanted to make more room in our capital structure for a little more than $400 million of floating rate debt, and the commercial paper was the most efficacious way of getting that. And so we upsized our commercial paper, and so you're seeing us probably run with a slightly higher level of persistent commercial paper balances, as a consequence of that. So it's probably gonna run at least in the $400 to 500 million range most every time, it flex up a little bit more or less, depending on what's going on in our funding of the business.
But we've not what would it into our plan for this year.
It's something we'll look at as we proceed further into the year, but it's hard to sort of estimate what exactly youre going to get in terms of volume price and so forth and so our approach to that is likely to be more opportunistic, but we have the flexibility of the capital capacity to do both here.
Thank you.
Our next question comes from the line of almost Tayo Okusanya with Deutsche Bank. You May proceed with your question.
Alexander Goldfarb: Okay, and then the second question is on stock buybacks versus development. I think, you know, in our numbers, we have you trading at sort of a high 5 implied cap, and you spoke about sort of low 6s, you know, on a development yield basis. It would almost seem like right now, the stock buyback is the more accretive use of capital. But as you mentioned in the guidance, there is nothing planned for stock buyback. So can you just talk a little bit more about that, especially given your liquidity; it would just seem like stock buybacks would be more advantageous in the near term, given the current, you know, math, the spread between the two?
Alexander Goldfarb: Okay, and then the second question is on stock buybacks versus development. I think, you know, in our numbers, we have you trading at sort of a high 5 implied cap, and you spoke about sort of low 6s, you know, on a development yield basis. It would almost seem like right now, the stock buyback is the more accretive use of capital. But as you mentioned in the guidance, there is nothing planned for stock buyback. So can you just talk a little bit more about that, especially given your liquidity; it would just seem like stock buybacks would be more advantageous in the near term, given the current, you know, math, the spread between the two?
Floating rate debt in our capital structure has slowly winnowed down to about million dollars to where it is today and we'd like to have more in commercial paper, just happens to represent the most attractive form of of floating rate debt. So our view was that we wanted to make more room in our capital structure for a little more than 400 million dollars of floating rate. Debt and the commercial paper was the most efficacious way of getting that and so we upsized our commercial paper and so you're seeing us probably run with a a a a slightly higher level of persistent commercial paper balances um as the consequence of that. So it's probably probably going to run at least in the 4 to 500 million dollar range. Most every time and flex up a little bit more or less depending on what's going on in our funding of the business.
Hi, Yes. Good afternoon, just a quick one wanted to go back to handle the question about the expense and market and.
Again, just given your outlook for those markets. How quickly you still think you might be growing over the next kind of one to three years.
Regards to exports, it's a growth market.
Yes.
It's a multi year journey for us as you know we've been growing in our expansion markets now for seven or eight years.
We're about halfway towards our target of 25%.
Kevin O'Shea: Sure. So Alex, I'll, I'll say a couple things, and Ben may want to chime in. Just from our point of view, our shares are terrifically, attractively priced right now, probably an implicit cap rate in the low 6% range. If you look at our development start activity that we've planned for 2026, the expected yields on that are higher, at 6.5% to 7%. So for us, you know, the opportunity to development or buyback activity isn't necessarily binary for us. We can do both, and as you saw last year, we did exactly that. So we do believe that the $800 million that we've programmed in for this year's starts are attractive.
Kevin O'Shea: Sure. So Alex, I'll, I'll say a couple things, and Ben may want to chime in. Just from our point of view, our shares are terrifically, attractively priced right now, probably an implicit cap rate in the low 6% range. If you look at our development start activity that we've planned for 2026, the expected yields on that are higher, at 6.5% to 7%. So for us, you know, the opportunity to development or buyback activity isn't necessarily binary for us. We can do both, and as you saw last year, we did exactly that. So we do believe that the $800 million that we've programmed in for this year's starts are attractive.
Okay. And then the second question is on stock buybacks versus development. I think, you know, on our numbers, we have you trading at sort of a high 5% simplified cap rate, and you spoke about sort of low sixes, you know, on a development yield basis. It would almost seem like, right now, the stock buyback is the more accretive use of capital, but as you mentioned in the guidance, there is nothing planned for stock buybacks. So, can you just talk a little bit more about that? Especially given your liquidity? It would just seem like stock buybacks would be more advantageous in the near term, given the current, uh, you know, math, uh, the spread between the two?
And then there are certain years, where either because of the deal opportunities or more importantly, the relative trade as we think about redeploying capital from our established regions into our expansion regions that has looked more attractive.
So last year, we were pretty active on that front in terms of repositioning part of the portfolio for this year and as you've heard we're planning generally less transaction activity on.
Sure, um, so Alice, I'll say a couple things and Ben may want to chime in just from our point of view. Um, our shares are terrifically attractively priced right now, probably an implicit cap rate in the low 6% range. If you look at our development start activity that we've planned for 2026, um, the expected yields on that are higher—at 6.5% to 7%.
On the buying side it would be very selective, particularly given the opportunities of using just both proceeds to buy back our stock and then from a development perspective as Matt mentioned earlier. This year. We are ahead of heavier weighting towards our established east coast region. So not expecting this year to be sort of a meaningful movement, but we will continue.
Kevin O'Shea: We also recognize that potentially doing additional buyback activity may make sense for us, but we've not woven it into our plan for this year. It's something we'll look at as we proceed further into the year. But it's hard to sort of estimate what exactly you're going to get in terms of volume, price, and so forth. And so our approach to that is likely to be more opportunistic, but we have the flexibility and the capital capacity to do both here.
Kevin O'Shea: We also recognize that potentially doing additional buyback activity may make sense for us, but we've not woven it into our plan for this year. It's something we'll look at as we proceed further into the year. But it's hard to sort of estimate what exactly you're going to get in terms of volume, price, and so forth. And so our approach to that is likely to be more opportunistic, but we have the flexibility and the capital capacity to do both here.
Over multi year period headed in that direction towards our targets.
Thank you.
So for us, you know, the opportunity to development um or buy back activities isn't necessarily buying binary for us. We can do both. And as you saw last year, we did exactly that. So we do believe that the $800 million that we programmed in. For this year, starts are attractive. We also recognize that potentially doing additional buyback activity, may make sense for us. Um, but we've not voted it into our plan for this year. It's it's, um, it's something we'll look at as, as we proceed further into the year, but it's hard to sort of estimate what exactly you're going to get.
As there are no further questions at this time. This now concludes our question and answer session I would now like to turn the floor back over to Ben for closing comments.
That, in terms of volume, price, and so forth. And so, our approach to that is likely to be more opportunistic, uh, but we have the flexibility and the capital capacity to do both here.
Alexander Goldfarb: Thank you.
Alexander Goldfarb: Thank you.
Thank you.
Thanks, everyone for joining us today, we appreciate the questions and look forward to seeing you soon.
Operator: Our next question comes from the line of Omotayo Okusanya with Deutsche Bank. You may proceed with your question.
Operator: Our next question comes from the line of Omotayo Okusanya with Deutsche Bank. You may proceed with your question.
Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines and have a wonderful day.
Omotayo Okusanya: Hi, yes, good afternoon. Just a quick one. I wanted to go back to Handel’s question about the expansion markets. And again, just giving your outlook for those markets, how quickly you still think you might be growing over the next kind of 1 to 3 years in regards to exposure to those markets?
Omotayo Okusanya: Hi, yes, good afternoon. Just a quick one. I wanted to go back to Handel’s question about the expansion markets. And again, just giving your outlook for those markets, how quickly you still think you might be growing over the next kind of 1 to 3 years in regards to exposure to those markets?
Our next question comes from the line of Omato Okusaga with Deutsche Bank. You may proceed with your question.
Outlook for those markets—how quickly you still think you might be growing over the next kind of one to three years, in regards to exposure to those markets.
Benjamin Schall: Yeah, it's a multi-year journey for us. As you know, we've been growing in our expansion markets now for 7 or 8 years. We're, you know, about halfway towards our target of 25%. And then there, you know, are certain years where either because of deal opportunities or, more importantly, the relative trade as we think about redeploying capital from our established regions into our expansion regions, that has looked more attractive. So last year, we were pretty active on that front in terms of repositioning part of the portfolio. You know, for this year, as you've heard, we're planning, you know, generally less transaction activity. On the buying side, you know, it would be very selective, particularly given the opportunities of using dispo proceeds to buy back our stock.
Benjamin W. Schall: Yeah, it's a multi-year journey for us. As you know, we've been growing in our expansion markets now for 7 or 8 years. We're, you know, about halfway towards our target of 25%. And then there, you know, are certain years where either because of deal opportunities or, more importantly, the relative trade as we think about redeploying capital from our established regions into our expansion regions, that has looked more attractive. So last year, we were pretty active on that front in terms of repositioning part of the portfolio. You know, for this year, as you've heard, we're planning, you know, generally less transaction activity. On the buying side, you know, it would be very selective, particularly given the opportunities of using dispo proceeds to buy back our stock.
Benjamin Schall: And then from a development perspective, as Matt mentioned earlier, this year, we have a heavier weighting towards our established East Coast region. So not expecting this year to be sort of a meaningful movement, but we'll continue over a multi-year period, headed in that direction towards our targets.
Benjamin W. Schall: And then from a development perspective, as Matt mentioned earlier, this year, we have a heavier weighting towards our established East Coast region. So not expecting this year to be sort of a meaningful movement, but we'll continue over a multi-year period, headed in that direction towards our targets.
Yeah, it's it's a it's a multi-year journey for us. Um, as you know, we've been, uh, growing in our expansion markets. Now, for 7 or 8 years, um, we're, you know, about halfway towards our Target of 25%. Um, and then there, you know, are certain years where either because of deal opportunities, or more importantly, the the relative trade as we think about redeploying capital from our established regions into our expansion regions that has looked more attractive. Um, so last year we were were pretty active on that front. In terms of repositioning part of the portfolio, you know, for this year, um, as you've heard we're planning, you know, generally less transaction activity, um, on the buying side, you know, it would be very selective particularly given the opportunities of using dispos proceeds to buy back our stock. And then from a development perspective is Matt mentioned earlier this year, we have a head heavier weighting towards our established east coast region. So not expecting this year to be sort of a a meaning
Full movement, but we'll continue over a multi-year period headed in that direction towards our targets.
Omotayo Okusanya: Thank you.
Omotayo Okusanya: Thank you.
Thank you.
Operator: As there are no further questions at this time, this now concludes our question and answer session. I would like to turn the floor back over to Ben for closing comments.
Operator: As there are no further questions at this time, this now concludes our question and answer session. I would like to turn the floor back over to Ben for closing comments.
As there are no further questions at this time, this now concludes our question and answer session. I would like to turn the floor back over to Ben for closing comments.
Benjamin Schall: Thanks, everyone, for joining us today. We appreciate the questions and look forward to seeing you soon.
Benjamin W. Schall: Thanks, everyone, for joining us today. We appreciate the questions and look forward to seeing you soon.
Thanks, everyone, for joining us today. We appreciate the questions and look forward to seeing you soon.
Operator: Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines and have a wonderful day.
Operator: Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines and have a wonderful day.
Ladies and gentlemen, thank you for your participation. This concludes today's conference, please disconnect your line, and have a wonderful day.
