AvalonBay Communities, Inc.

Good afternoon, ladies and gentlemen, and welcome to Avalon Bay Community's fourth 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 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. 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. Mr. Grover, you may begin your conference call.

Thank you, Operator, and welcome to Avalon Bay Community's 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 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 Bay Communities, for his remarks. Ben?

Thank you, Matt, and good afternoon, everyone. I'm joined today by Kevin O'Shea, our Chief Financial Officer, Sean Breslin, our Chief Operating Officer, and Matt Birnbaum, our Chief Investment Officer. Looking back on 2025, I want to begin by thanking our nearly 3,000 associates across Avalon Bay for their dedication and commitment. 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. 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 engaged 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 2.1% during the year. 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 6.2%. 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. We have one of the strongest balance sheets in the industry and also pride ourselves in remaining nimble in capital sourcing and capital allocation. Among our peer set, we were 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 at the end of 2025, we were 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-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 1.4% 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 a 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 costs from the $1.65 billion of 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 of seven projects with an average development yield of between 6.5% 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 1.7% increase, continues to 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 750,000 net new jobs in 2026. As the year progresses, enhanced 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, improve 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. whereas over $2,000 per month more expensive to own a home, given home price levels, mortgage rates, and the increases in other costs of homeownership, such as insurance and property taxes. And then there's 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 GFC. 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 9 and 10 provide our outlook for 2026. We enter the year with a high-quality portfolio concentrated in suburban coasts with historically low levels of supply, a differentiated development platform, and one of the strongest balance sheets in the REIT sector. And where 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.