AvalonBay Communities, Inc.

Good afternoon, ladies and gentlemen, and welcome to Avalon Bay Community's third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. Following remarks by the company, we will conduct a question and answer session. You may enter your question and answer queue at any time during this call by pressing star 1 on your keypad. If your question has been answered or you wish to remove yourself from the queue, you may press star 2 on your keypad. If you are using a speakerphone, please lift the handset before asking your question. We ask that you refrain from typing and having 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. Mr. Grover, you may begin your conference call.

Thank you, Vaughn, and welcome to Avalon Bay Community's third 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 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 investors.avalonbay.com, 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 Bank Communities, for his remarks. Ben?

Thank you, Matt. I'm joined today by Kevin O'Shea, our Chief Financial Officer, Sean Breslin, our Chief Operating Officer, and Matt Bierenbaum, our Chief Investment Officer. Before discussing our Q3 results, which were below our prior expectations, and our updated outlook for 2025, I want to start by emphasizing a series of Avalon Bay tailwinds and strengths that keep us confident in our ability to drive superior earnings and value for shareholders. First, our portfolio, with its heavy concentration of communities and suburban coastal markets, continues to be well positioned. With a more uncertain demand backdrop, we believe that those markets and submarkets with lower levels of new supply will continue to be the relative winners. Our established regions are particularly well situated, with deliveries as a percentage of stock projected at only 80 basis points next year. And given how challenging it is to get new development approvals and the amount of time it takes to get those approvals, we expect our markets to continue to benefit from below average levels of supply for a number of years. A second differentiator for us is the $3 billion of projects we currently have under construction. which will generate a meaningful uplift in earnings and value creation in 2026 and 2027. These projects are tracking ahead of our initial underwriting and, importantly, are benefiting from reduced construction costs, which translates into a lower long-term basis for shareholders. These projects are 95% match-funded with capital that we previously raised through a mix of equity and unsecured debt with an initial cost of capital below 5%. providing an attractive spread to our development yields on these projects. Third, our balance sheet is in terrific shape with low leverage and over $3 billion of available liquidity. As we look ahead, this balance sheet strength provides us with the flexibility to continue to redeploy free cash flow, disposition proceeds, and low-cost debt into our next set of accreted development projects, as well as to buy back our stock when appropriate, as we did in Q3, having repurchased $150 million of our stock at an average price of $193 per share. Finally, we continue to advance on our set of strategic focus areas, which are generating incremental earnings and cash flow from our existing portfolio, as well as on new developments and acquisitions. This year, we've made strong progress in advancing toward our longer-term portfolio allocation targets with a continual eye towards enhancing the cash flow growth of our portfolio. And we remain very excited about our progress on our operating model initiatives, including the expanded set of uses for technology, AI, and centralized services. By year-end 2025, we expect to be roughly 60% of our way toward our target of generating $80 million of annual incremental NOI from these operating initiatives. Turning to third quarter, slide five in our earnings presentation summarizes our Q3 and year-to-date results. We are on track to start $1.7 billion of development projects this year with a projected yield in the low sixes on an untrended basis. We've also completed our planned capital sourcing activity for the year, having raised $2 billion of capital at an average initial cost of 5%, generating a spread north of 100 basis points relative to development yields. Slide six provides the breakdown of third quarter core FFO relative to our prior expectations. Of the $0.05 underperformance relative to our outlook, $0.03 was attributable to same-store portfolio results, of which $0.01 related to lower revenue and $0.02 related to higher operating expenses, including in repairs and maintenance, utilities, insurance, and benefits. Turning to slide seven, apartment demand has been softer than anticipated this year, which we attribute mainly to the reduced job growth backdrop, with related factors including higher macroeconomic uncertainty, lower consumer confidence, and a reduction in government hiring and funding. As shown on the left side of slide six, the National Association of Business Economics, or NABE, is now projecting growth of 725,000 jobs in 2025, down from the over 1 million jobs in their prior forecast. And for Q4, NABE is projecting growth of just 29,000 jobs per month. We revised our revenue expectations as part of our mid-year forecast, with results for July and August generally tracking to those expectations, as shown on the right-hand side of slide seven. As Sean will discuss further, softness on rental rates in August continued in September, along with a slight occupancy dip. With further softness continuing into October, trends that are now incorporated into our updated outlook for the remainder of the year. As shown on slide eight, we've also updated our expense outlook for the year to 3.8%. After benefiting from meaningful operating expense savings in the first half of 2025, we've had trends run against us across a set of expense categories without any offsetting savings. For example, in repairs and maintenance, we knew that certain savings from the first half of the year would be incurred in the second half, but have incurred more and higher cost repairs and non-retreat projects than anticipated. Other unfavorable variances include insurance, utilities, and associate benefit costs. Given our Q3 results and these revenue and operating expense trends, we've updated our outlook for the full year, which Kevin will now discuss in more detail.