Equity Residential

Good day and welcome to the EQR 2Q23 earnings conference call and webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Marty McKenna.

Good morning, and thanks for joining us to discuss equity residential second quarter 2023 results. 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. Now I will turn the call over to Mark Perel.

Thank you, Marty. Good morning and thank you all for joining us today to discuss our second quarter 2023 results. As we work our way through the leasing season, the business is performing well with same store expenses now looking a little bit better than we thought, leading us to lower our guidance for that item last night. As a result of this and lower expected interest expense, we are pleased to again raise our same store net operating income and normalized funds from operations guidance after raising same-store NOI and NFFO guidance just two months ago based on better expected revenue results. In a moment, Michael Manelis will give you a call around revenue drivers across our markets. After Michael's remarks, Bob will address the details of the improvement in our expense and NFFO guidance, as well as our successful pending refinancing activity. The overall theme here is that equity residential continues to benefit like most of the multifamily industry from solid demand, but with the more unique benefit of our mostly coastal portfolio being less exposed to the significant levels of supply just beginning to be delivered in the Sunbelt markets. We also continue to manage expenses well in an inflationary environment, which we expect will allow us to drive more dollars to the bottom line than our competitors over time. In terms of specifics, in the quarter, we continued to post strong same-store revenue results, driven by good demand across our markets and rapidly improving delinquency in Southern California. As you may recall, we increased the midpoint of our same-store revenue guidance for the year to 5.875% in May, right before the NAREAP conference to reflect these factors. That, in turn, caused an improvement of 100 basis points in our same-store NOI guidance midpoint and a $0.03 per share improvement in NFFO guidance at the midpoint. These continued strong operating results speak to the durable nature of our business in the face of some pretty volatile economic conditions. Despite the layoff headlines, particularly in the tech sector that dominated the news in late 2022 and early 2023, we see substantial demand from our affluent renter demographic. Also in places like Seattle, We are hopeful that the return to office mandates by employers like Amazon will drive incremental demand back into the urban areas of the city as commute times become intolerable for workers who dispersed far outside the city in response to COVID and are now required to be in the office frequently and as quality of life issues in these urban areas improve. And while new supply is certainly pressuring the Sunbelt and Denver markets, as I mentioned before, We are seeing moderate levels of supply in most of our major markets, even in Washington, DC, where we are seeing the highest levels of competitive new supply is being absorbed at a good rate and the market is performing well. Switching over to the transactions market, that market continues to be relatively quiet. We did not sell anything in the second quarter, but we did buy a couple of deals, including a newly developed property in lease up in Atlanta that I spoke about on our first quarter call. The other acquisition in the second quarter is a 287 unit property located in suburban Denver, which we purchased for approximately $108 million at an acquisition cap rate of 5%. The transaction market generally remains stuck between buyers who expect lower prices given the huge shift in interest rates and the less accommodative capital markets and sellers who remain wedded to early 2022 values and by and large have assets that are still operating pretty well. so they feel no great compulsion to sell right now. Our sense is that sales will pick up over the next six to 12 months as sellers accept the reality of rates being higher for longer, as floating rate loans with expiring caps reset, and as developer capital invested in newly completed development deals becomes impatient. Now a quick note on our capital allocation strategy. As we've discussed with you for the past few years, We continue to have a goal of having a more balanced portfolio between urban and suburban and between coastal and Sunbelt markets. We think such a portfolio will create the highest returns and lowest volatility over time. The recent issues caused by COVID in urban centers and the current issues in the Sunbelt markets due to supply are examples of the opportunities and risks we wish to balance. As opportunities present themselves in the Sunbelt and Denver markets and in select suburban locations of our coastal markets, to acquire or develop great assets at fair prices, we will be there to do so. And before I turn it over to Michael, I want to take a moment to celebrate our 30 years as a public company. On August 12, 1993, Equity Residential went public on the New York Stock Exchange. Much has happened in the past 30 years. We grew from about 21,000 units, an initial valuation of $800 million in 1993, to more than 225,000 units across more than 50 markets at the peak, leading to our 80,000 units and a value of more than $26 billion today. On this journey, we acquired a number of other public apartment REITs, as well as some very large private portfolios, including Archstone. At the head of this enterprise for all those years was our amazing founder and chairman, Sam Zell, who we lost in May. Sam's guidance and influence are part of our DNA at Equity Residential, and we will continue to run this company to honor his legacy of delivering superior long-term value to our shareholders. We thank all of you for your support over the past 30 years and for your kind words regarding Sam's passing. And with that, I'll turn the call over to Michael.