Equity Residential

Welcome to the Equity Residential Third Quarter 22 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Marty McKenna. Please go ahead.

Good morning, and thanks for joining us to discuss Equity Residential's Third Quarter 2022 results. Our featured speakers today are Mark Perel, our President and CEO, and Michael Manelis, our Chief Operating Officer. Bob Gerchana, our chief financial officer, is here with us as well for the Q&A. Our earnings release and accompanying management presentation 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 I'll turn the call over to Mark Perel.

Thank you, Marty. Good morning, and thank you all for joining us today to discuss our third quarter results. As you can see from our press release, Equity Residential had an outstanding quarter. Our revenue results in the quarter were driven by steady occupancy, continuing strong renewal rate growth, and decelerating but still above trend new lease rate growth. We coupled that with a continuation of modest expense growth, leading the same store NOI growth for the quarter of an exceptional 16.2%. With continuing positive financial leverage, this led to a 19.5% increase in quarter-over-quarter normalized funds from operations. We are proud to have improved margins and created substantial cash flow growth in a turbulent time in the economy. I congratulate my colleagues across Equity Residential for their hard work, taking care of our residents and their fellow employees, and producing these impressive financial results. We know at this late point in the year, the focus naturally turns to 2023. As usual, we are not giving guidance at this time, but in the management presentation we posted last night, we tried to frame the material factors that will drive next year's revenue results. In a moment, Michael will take you through those factors in some detail. We remind you that the success we've had in 2022 will create a challenging comparable period, so we continue to expect a moderation in 2023 annual same-store revenue growth, even if, as we expect, 2023 is a strong above-trend year. Looking at it from the top of the house, we like our affluent renter customer, and what we expect will be their financial and employment resiliency going into uncertain times. Our target resident is high-earning. and employed in knowledge industries with more durable incomes and employment prospects. The college graduate cohort, which we believe makes up the vast majority of our residents, has an unemployment rate of 1.8% compared to the 3.5% overall unemployment rate. Even if layoffs materialize, we believe that the tighter than average labor market for these knowledge workers will allow them to find replacement jobs quickly. Finally, although high inflation has impacted everyone's real incomes, our affluent renter is relatively more insulated due to their higher incomes and lower rent to income ratios. The average income for the residents who sign new leases with us in the past 12 months is $174,000, or 12% higher than the group who signed with us in the 12 months ending September 2021. These new residents are paying us slightly less than 20% of their income in rent, which is generally consistent with prior rent to income levels. On the apartment supply side, we see national apartment deliveries reaching a cycle high point in 2023. However, in the coastal markets where most of our properties are still located, we see supply as being lower and being delivered further away from our properties than in the past and thus likely less impactful. The Sunbelt markets, including the Denver, Dallas-Fort Worth, Austin, and Atlanta markets, in which we are increasingly investing, will see higher relative supply numbers than our coastal established markets and likely more impact, especially if that's coupled with a job slowdown. For us, this may turn into a nice opportunity to acquire assets in these expansion markets, not necessarily at fire sale prices, but had better values than prevailed in the first half of 2022 when we felt that the market was overheated and chose to stay on the sidelines. We continue to see our strategy of having more balanced portfolio between our established and expansion markets as appropriate as we follow our affluent renters to these new markets and mitigate regulatory and resiliency risks from overconcentration in any market or in any state. In addition, other housing alternatives remain expensive and in low supply. Though they have been declining of late, current single-family home prices continue to be at record levels, while rising mortgage rates have further stressed affordability, particularly for first-time homebuyers. Single-family housing starts are declining. Existing homeowners are more reluctant to sell due to low locked-in mortgage rates, along with minimal and expensive for sale replacement options. And competition for homes from investors remains strong. Going against these positive factors for our business is a significant impact of inflation on the economy, where job growth goes in response to the Federal Reserve's actions, as well as volatility in the capital markets, the continuing impact of the war in Ukraine, and a myriad of other uncertainties. We are currently in an excellent spot, but acknowledge that the risks and uncertainties are more elevated than usual. And with that, I'll turn the call over to Michael Manelis.