AvalonBay Communities, Inc.

At this time, all participants are in a listen-only mode. Following remarks by the company, we will conduct a question and answer session. You may enter the question and answer queue at any time during this time by pressing star 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, please press star 2. If you are using a speakerphone, please lift the handset before asking your question. and 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 Mr. Jason Riley, Vice President of Investor Relations. Mr. Riley, you may begin your conference.

Thank you, Kyle, and welcome to Avalon Bay Community's second quarter 2022 earnings conference call. Before we begin, please note that forward-looking statements may be made during this discussion. There are a variety of risk and uncertainties associated with forward-looking statements, and actual results may differ materially. There is a discussion of these risk 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, this press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's discussion. The attachment is also available on our website at www.avalonbay.com forward slash earnings, and we encourage you to refer to this information during the review of our operating results and financial performance. And with that, I will turn the call over to Ben Shaw, CEO and President of Avalon Bay Communities, for his remarks. Ben?

Thank you, Jason, and thanks, everyone, for joining us today. Kevin, Sean, and I will share some prepared remarks, and Matt is with us as well for Q&A. I'll start by discussing our financial and operating performance, as well as our latest approaches to capital allocation. On operations, we had a very strong second quarter with core FFO of $2.43 per share, exceeding our prior guidance by 12 cents per share, or more than 5% above expectations. This magnitude of outperformance is atypical, particularly since we increased Q2 guidance at the end of April, and was driven by continued asking rent growth above average occupancy, and favorable net bad debt. As shown on slide four, core FFO increased roughly 23% during the second quarter, bringing our year-to-date core FFO growth up to 19%. And as Kevin will describe more fully, we're raising core FFO guidance for the year to $9.86 per share at the midpoint, an increase of 28 cents per share over our prior guidance. As we will highlight later during our remarks, There are a number of meaningful tailwinds that support our strong earnings guidance for the back half of the year and support continued growth going into next year, or if the macro environment were to erode in a way which impacts our operating fundamentals, that should serve as a ballast. Switching over to capital allocation, our balance sheet is as strong as it has ever been, providing strength in an uncertain macro environment, and allowing us to maintain our focus on creating shareholder value over time and across cycles. We've also responded to the changing capital markets in certain ways. We issued a $500 million equity forward in April at $250 a share, which we can draw down through the end of 2023 to fund our future growth. As we communicated in Q1, we also shifted from being a net buyer to a net neutral trader of assets in 2022. as we continue to optimize the portfolio and rotate capital from our established regions into our expansion markets. We continue to selectively match dispositions with acquisitions at market cap rates, which we've seen widen by approximately 50 basis points in many markets. Consistent with prior activity, our dispositions are generally of older assets with higher CapEx profiles in our established regions, which we're utilizing to fund acquisitions of newer assets in our expansion markets. And while we remain active on the development front with $2.1 billion under construction and a $4.7 billion development rights pipeline, we have reduced our projected 2022 starts based on some project-specific delays. For new potential projects, we are focused on maintaining flexibility so that we can ramp up or down our overall 2023 development start volume, depending on how macro conditions evolve. Before turning it to Sean, let me quickly provide some additional color on our Q2 revenue growth. Slide five provides a breakout of our 12.9% Q2 same-store revenue growth, with the vast majority coming from growth in lease rates, as well as the reduced impact of concessions as compared to Q2 last year. Net bad debt also improved relative to last year, with additional rent relief payments offsetting the change in underlying bad debt. Turning to slide six, Net bad debt was a meaningful component of our outperformance relative to Q2 guidance with rent relief payments via the federal government's emergency rental assistance program continuing into May and June as compared to our prior expectations that these government funds would run dry earlier in Q2. And while net bad debt remains elevated, we are pleased to see improving resident payment behavior with underlying bad debt currently in the low 3% of revenue range down from mid-4% in Q4 2021, and compared to 50 to 70 basis points historically. And with that, I'll turn it to Sean to review the operating backdrop in more detail.