Equity Residential

Good day and welcome to the Equity Residential First Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Marty McKenna. Please go ahead, sir.

Good morning and thanks for joining us to discuss Equity Residential's First Quarter 2021 results. Our featured speakers today are Mark Perel, our President and CEO, and Michael Manelis, our Chief Operating Officer. Bob Gershon, our Chief Financial Officer, is here with us as well for the Q&A. Our earnings release as well as a management presentation regarding our results and outlook are posted in the investor section of equityapartments.com. Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events. Now we'll turn the call over to Mark Perel. Thanks, Marty.

Good morning, and thank you all for joining us today. We are pleased to report that we are seeing significant improvement in our operations driven by continued strong demand all across our portfolio. This, in turn, allowed us to extend the gains in occupancy we discussed on the prior earnings call. We are currently 96% occupied, 160 basis point improvements since December 31st, 2020. We are especially encouraged by our numbers as we enter our primary leasing season, the period of peak demand in our business, and by the continuing reopening activities in our cities. The improving pricing we noted on last quarter's call has accelerated over the past few months. Pricing trend, which is a leading indicator of where market rents are going, and his computed net of concessions is up 14% this year, and we have already recovered 60% of the pricing reduction we suffered as a result of the pandemic. In fact, on a pricing trend basis, collective pricing in our markets outside of New York and San Francisco is likely to recover completely by the end of May. The New York and San Francisco markets declined by more than our other markets, so they have further to go to regain pre-pandemic pricing, but momentum is strong in those two markets, and they are making good progress towards full recovery. To provide additional color on our operating trends, we posted to our website at equityapartments.com a management presentation that provides some background on both current operations and our guidance expectations. After I give a quick overview of guidance changes and investment activities, Michael Manelis, our Chief Operating Officer, will provide more detail on our current performance and forward trajectory. After that, we'll take your questions. The encouraging trends I just mentioned led us to raise our guidance ranges for physical occupancy, same-store revenue, same-store net operating income, and normalized funds from operations as disclosed in last night's release. The midpoint of our same-store revenue range was raised 100 basis points to negative 7%. The midpoint of our NOI range was raised 150 basis points to negative 12%. And the midpoint of our NFFO range was raised by 5 cents to $2.75 per share. These improvements were almost entirely driven by stronger and earlier than anticipated recovery trends in both our residential and non-residential operations across all our markets. We are well positioned heading into our prime leasing season, but our reported same store revenue numbers will lag the recovery in our operating statistics as we work through the impact of lower rents and of concessions. In terms of the first quarter's numbers, the impact of the pandemic is readily apparent. We said previously that our reported same-store revenue numbers would get worse before they get better, and that's exactly what happened. Same-store revenues declined at 10.5% for the quarter, which, while it was a bit better than we expected, is still among the worst revenue numbers in our history. We believe that our first quarter results will be our low point for the year and that they will improve from this point on. Turning to investments, While no dispositions or acquisitions close this quarter, we have been active in the transaction market, and we expect to have a considerable amount of activity to report on next quarter. As we've said on prior calls, in order to create the most stable, growing cash flow stream possible for our investors, we are broadening our portfolio over time to increase our exposure to suburban properties in our existing markets where the resident demographic is similar to our existing affluent urban resident population. We're also working on increasing our investment in Denver and continuing to consider a select number of new markets that have large and growing affluent resident bases, favorable long-term supply and demand characteristics, and lower political risk. While asset prices are high in the locations in which we seek to invest, our funding source for these acquisitions comes from sales of existing properties, especially in California, where we are obtaining pricing that exceeds our pre-pandemic valuations. We expect to complete this transaction activity with minimal dilution and to stay consistent with our strategy of acquiring newer assets with modest capital expenditure burdens. The one piece of notable investment activity that did occur in the quarter was our $5 million investment in a fund that preserves affordable housing across our country. This for-profit fund is run by longtime experts in the affordable housing preservation and finance area, Using our equity capital and that of other investors, as well as government financing, the fund acquires and improves the quality of existing affordable housing communities that would otherwise be at risk of either physical neglect or where the affordable restrictions are about to expire. We have been clear on prior calls of our steadfast opposition to rent control and other short-sighted policies that do not help solve the affordable housing shortage. Economists consistently say that rent control, in fact, leads to disinvestment in existing housing and impedes the creation of new housing. We support solution-focused investment like this fund that preserve or create affordable housing and favor the elimination of overly restrictive zoning codes that limit housing production where it's needed most. Along with ongoing engagement with public officials in our markets, this investment demonstrates our commitment to being part of the solution with respect to the affordable housing gap. To sum up, we are encouraged by the progress being made on vaccinations as well as the reopening of cities. Recent announcements made by employers, particularly in the tech industry, regarding return to office are welcome news. We believe that the new operating model for most companies will be a hybrid of in-office and work from home, and that our portfolio will benefit from workers looking to live close to the office. The unique cultural and entertainment options that are becoming available again as cities reopen are also magnets to our affluent renter demographic and will draw them back to the cities and to the lifestyle many of them crave. Our customer base has stayed well employed during the pandemic and can afford our current rents and absorb future rent increases as market conditions improve. 2021 is indeed turning out to be a year of recovery for our company. As we have said before, equity residential same-store revenue growth coming out of recessions has typically recovered quickly, with us posting strong numbers, and I see no reason that will not occur again once the lagging impact of concessions and some of the other factors I mentioned abate. All of this is, of course, premised on continuing progress in controlling the virus and an assumption that other economic conditions remain supportive. Before I turn the call over to Michael, I want to thank all of our investors for their continued support during these challenging times. We are well positioned to benefit from a return to normal as the pandemic subsides. We are optimistic about the future of our business and believe that our portfolio will thrive. I'll now turn the call over to Michael Manelis. Michael?