AvalonBay Communities, Inc.

Good morning, ladies and gentlemen, and welcome to Avalon Bay Community's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. Following remarks by the company, we will conduct a question and answer session. You may answer the question and answer queue at any time during this call by pressing star 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, press star 2 on your telephone keypad. If you're using speakerphone, please lift the handset before asking your question. And we ask you to 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 call.

Thank you, Diego, and welcome to Avalon Bay Community's first quarter 2024 earnings conference call. Before we begin, please note that forward-looking statements may be made during this discussion. There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There is a discussion of these risks and uncertainties in yesterday afternoon's press release, as well as in the company's Form 10-K and Form 10-Q filed with the SEC. As usual, the press release 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.

Thanks Jason and good morning everyone. I'm joined by Shawn Breslin, our Chief Operating Officer, Matt Birnbaum, our Chief Investment Officer, and Kevin O'Shea, our Chief Financial Officer. Shawn will speak to our operating outperformance year to date and our positive momentum as we enter the prime leasing season. Matt will discuss the continued outperformance of our developments in lease up and how we are strategically deploying capital to generate value. And Kevin is here for questions and is more than happy to speak to our preeminent balance sheet and liquidity profile. Utilizing our earnings presentation, slide four provides the highlights for the quarter and identifies key themes as we look ahead. First and foremost, we are off to a strong start to 2024 with first quarter results outpacing expectations. We were able to build occupancy earlier than expected, and we also experienced meaningful improvements in bad debt in February and March. Second, we feel well positioned as we enter the peak leasing season, given low turnover, solid occupancy, and positive rental rate momentum. We also expect our suburban coastal footprint to continue to outperform, given steady and improved demand drivers and the limited amount of new supply delivering in our markets versus the rest of the country. Given our first quarter outperformance, expectations for Q2, and improvements in underlying trends, we have increased our full year guidance. We also remain laser focused on executing on our strategic initiatives, including our operating model transformation. We remain on track here to deliver $80 million of incremental annual NOI uplift from our operating initiatives, a target we raised from $55 million at our investor day in November. And finally, with one of the strongest balance sheets in the sector, we are focused on growth opportunities in which we can tap our strategic capabilities from our operating prowess to our development strength to drive outsized returns for shareholders. For that summary, let me go a layer deeper on our results, the wider supply and demand backdrop, and our increase to guidance. For the quarter, as shown on slide five, we produced core FFO growth of 5.1%, which was 350 basis points above our prior outlook. Same-store revenue growth increased 4.2%, and 90 basis points better than our prior outlook. And our developments in lease-up are seeing strong absorption and achieving rents and returns above performance. Slide 6 shows the components of the Q1 core FFO outperformance, with the bulk of the increase coming from higher same-store NOI. Revenues exceeded our prior outlook by $0.04. Expenses in the first quarter were $0.03 better than expected, but we note that two of this $0.03 is estimated to be timing-related, or in other words, expenses we still expect to incur just later in the year than we had originally forecast. Turning to slide seven, demand for our portfolio is benefiting from more job growth than originally forecasted. For our job growth estimates, we look to the National Association of Business Economics, or NABE, which has now increased its estimate to 1.6 million new jobs in 2024, up from the prior estimate of 700,000 jobs. This better job outlook provides an incremental lift to demand, but not necessarily on the same trajectory as it may have in the past, given that a disproportionate share of these additional jobs may be part-time and seem to be more concentrated in lower-paying sectors of the economy. As shown on the right-hand side of slide 7, demand for apartments also continues to benefit from the differential in the cost of owning a home versus renting. This is true across most of the country, but particularly pronounced in our markets, given the level of home prices, resulting in it being more than $2,000 per month more expensive to own versus rent a home. And this differential translates into record low numbers of residents leaving us to buy a home. Turning to supply on slide eight, as we emphasized at our investor day, our suburban coastal portfolio, 71% suburban today and headed towards 80% suburban, faces significantly less new supply than many of our peers. In our established regions, deliveries will be 1.5% of stock this year and in line with historical averages. In the Sunbelt, by contrast, Deliveries will be 3.8% of stock in 2024, significantly above historical averages. And with a lease up of a typical project taking an additional 12 to 18 months, the pressure on rents and occupancy in the Sunbelt will last at least through the end of 2025, if not into 2026. This weaker operating performance in the Sunbelt is in turn starting to weigh on asset values there, which provides a more attractive opportunity for us to acquire assets below replacement costs, as we continue on our journey of growing our expansion market portfolio from 8% today to our 25% target. With this supply and demand backdrop and our outperformance year to date, we are increasing our full-year core FFO guidance estimate to $10.91 per share for a 2.6% increase relative to 2023. With the detail on slides 9 and 10, the bulk of the increase is in higher NOI, driven mainly by higher revenue, with same-store revenue growth now projected to be 3.1%, up from 2.6% in our original outlook. Before turning it to Sean, I'd also like to take a moment to thank the team and the wider Avalon Bay associate base who continue to execute at a high level and above plan. It is energizing to see the organization executing on their priorities that we detailed at our investor day, a collective set of initiatives that we are confident will deliver superior growth in the near term and in the years ahead. And with that, I'll turn it to Sean to go deeper and provide his perspectives.