Equity Residential

Good day and welcome to the Equity Residential fourth quarter 2021 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Marty McKenna. Please go ahead.

Good morning and thanks for joining us to discuss Equity Residential's full year 2021 results and outlook for 2022. Our featured speakers today are Mark Perel, our president and CEO, Michael Manelis, our chief operating officer, and Bob Garachana, our chief financial officer. Alec Brackenridge, our chief investment officer, is here with us as well for the Q&A. Our earnings release is 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. I will now turn the call over to Mark Perel.

Thanks, Marty, and thanks to all of you for joining us today. This morning, I'll make some remarks about what we see driving our operating results and cash flow growth this year and going forward, and I will comment on our capital allocation program and what the company will look like when it's complete. After that, Michael Manelis will review our operating performance and outlook for 2022 same store revenue. Bob Garachano will spend a few moments discussing our innovation activities and their impact on our business, and then we'll go ahead and take your questions. We're very excited about the prospects for our business in 2022 and beyond. Our affluent resident base is well employed and receiving healthy raises, and they are renewing with us at record levels. The robust demand for apartment living in both urban and suburban locations is driving high occupancy and the lowest resident turnover in our history. Our same-store revenue guidance calls for 9% growth at the midpoint, while our normalized funds from operations should grow at about 15%, both of which would be the best performance in our history. Cash flow from our business is likewise poised to grow strongly. We see this as the beginning of what should be a good run of performance as we welcome the 67 million member-strong Generation Z to the rentership world, and as we continue to attract and retain millennials with our flexible product offerings and a price point that is increasingly affordable relative to surging single-family housing costs. That said, we are aware of the recent storm clouds on the horizon in the general economy, which include high inflation and related concerns about how the Federal Reserve will manage short-term rates in its balance sheet, as well as continuing supply chain disruptions and, unfortunately, the latest COVID variant. While we are not immune to these pressures, a considerable amount of our expected 2022 revenue growth is already baked into our results in the form of leases recently signed at higher rates, as well as an expectation that even if rental rates do not rise in 2022, resetting leases to current market levels will provide a significant revenue boost. In 2023 and beyond, our ability to reset lease rates annually should create a natural hedge in a more inflationary world. We also continue to successfully execute on our expense control management with 3% growth in 2021 and a midpoint expectation of 3% growth in 2022, despite the impact of inflation on many costs in the economy. We run an incredibly efficient platform and continue to harness technology to control expenses, enhance the customer experience, and grow our operating margin. Bob will comment on all of this in a moment. Switching over to investments, we had a very active year on that side of the business with $1.7 billion each in acquisitions and dispositions, as well as progress in ramping up our development activities. We continued to optimize our portfolio by successfully recycling out of older assets and deploying capital into newer assets in our expansion markets and the suburbs of our established markets. Our 17 acquired properties have an average age of two years as compared to our 14 disposition assets with an average age of 30 years. And we're recycling all this capital while not diluting earnings. Our 2021 transaction activity on both the buy and sell side was done at an average cap rate of approximately 3.8%. In 2022, we expect to both sell and buy approximately $2 billion in assets, Our acquisition activity is focused on building out our portfolios in Atlanta, Dallas-Fort Worth, Denver, and Austin, as well as adding select assets in the suburbs of our existing markets. We continue to see great opportunities in our markets and expect to deploy $2 billion into them in 2022. On the development front, we commenced construction on approximately $450 million in development projects during 2021. and expect to deliver high-quality properties in Denver, suburban New York, and central Washington, D.C. in several years. We also completed the construction of our $400 million Alcott Tower in central Boston during the quarter, and we're pleased to report that the lease-up is going very well. In terms of the development pipeline, in the quarter we entered into four separate development joint ventures in Texas and in Colorado, with the Colorado joint venture beginning construction in the fourth quarter of 2021. and the other three expected to do so in 2022. These three parcels are the first in our development program with Toll Brothers. As we have discussed with you before, we are reshaping our portfolio to reflect the demand trend we see of some affluent renters spreading out from the coasts and congregating in markets like Atlanta, Austin, Dallas, Fort Worth, and Denver. We also see a similar but more local dispersion trend in our coastal markets, as another group of higher-income renters move to the suburbs of our established markets, like Bellevue, Washington, near Seattle, and Burlington, Massachusetts, near Boston. Now, we've always had a presence in the suburban submarkets of our established markets, so what I'm talking about here is just creating a little more balance between urban and suburban markets. We will also continue to have a substantial investment in the urban centers of our markets, and those will continue to attract, we think, high-quality renters, seeking to enjoy the many amenities of urban living. Driven by our analytical research and informed by our long experience in the apartment business, we seek to build and buy newer assets in urban and suburban locations in these markets where we see demand from higher renters as being high and likely to grow, where single-family housing is expensive relative to renting, and where supply is manageable. We expect our refined portfolio to have about one-third of its assets in the three northeastern markets of Boston, New York, and Washington, D.C., with a reduction in exposure coming from New York and Washington, D.C. dispositions. We see approximately one-third or maybe a bit more of the portfolio being in California, with divestments there occurring in challenging regulatory locations and of older assets. The remaining third or so of the company will be concentrated in a diagonal from Seattle through Denver to Austin and Dallas, Texas and over to Atlanta, Georgia. We think this distinct portfolio of newer, less capital-intensive assets and the 12 or so most desirable metros for more affluent renters to live will provide high and stable long-term returns. We also see reduced regulatory risk and resiliency benefits from this portfolio shift. And finally, before I turn the call over to Michael, I want to give a big thank you to all my colleagues in our offices and properties across the country. You are doing an exceptional job during very unusual times, and we're all very proud and grateful. We're in position for a great 2022, and I look forward to delighting our customers and our investors with you. Go ahead, Michael.