Equity Residential

Quarter 2024 Earnings Conference Call-In Webcast. 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 second quarter 2024 results. Our featured speakers today are Mark Perel, our President and CEO, Michael Manelis, our Chief Operating Officer, and Bob Gartana, our Chief Financial Officer. Alec Brackenridge, our chief investment officer, will be 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. I will start us off, and then Michael Manelis, our Chief Operating Officer, will discuss our second quarter 2024 revenue results and outlook, as well as give some recent highlights from what we call our property operations innovation machine. And then Bob Garachan, our Chief Financial Officer, will discuss our expense results and updated normalized funds from operations guidance, and then we'll take your questions. Looking at our quarterly results, same-store revenues increased 2.9% and same-store expenses rose only 2.7%, which led to same-store NOI growth of 3% and an increase in our NFFO per share of 3.2%. So far this year, our revenue performance has exceeded expectations as steady demand across all of our markets has met limited supply in our coastal established markets. As a reminder, approximately 94% of our NOI comes from our coastal established markets. Michael will get into the details shortly, but the northeastern markets of Boston, New York, and Washington, D.C., as well as Seattle, are standouts relative to our expectations back in January. Our expansion markets of Atlanta, Austin, Dallas, Fort Worth, and Denver, which together constitute 6% of our NOI, continue to have good demand but remain under pressure from continuing high levels of supply with our Atlanta and Austin portfolios most impacted. Putting all of this in the blender, this led us to increase our same-store revenue guidance by 70 basis points at the midpoint to 3.2%. Underlying these positive results and outlook are several trends that continue to support rental housing performance, including high homeownership costs, limited for-sale inventory, and a steady, though moderating, employment picture. We continue to see high levels of retention among our residents due to elevated homeownership costs, with homeownership proceeding record levels last month, making rental housing a good value alternative. We also see a steady employment picture in our target higher earning renter demographic, leading to sustained good levels of demand. In the second quarter, we saw a continuation of total employment growth across nearly all of our markets. Drilling down to office using employment, we saw a return to positive growth in Q2 for the first time in several quarters, with strong numbers posted by Washington, D.C., Los Angeles, and Atlanta. And, of course, lifestyle factors like delayed marriage and childbearing, which we've talked about on prior calls, continue to be a positive factor. The expense side of the equation is similarly positive news as we continue to utilize our sector-leading innovation machine to drive improvements in both our cost structure and our resident service experience. We lowered the same store expense midpoint of our annual guidance by a full percentage point to 3%, leading to a new same-store NOI guidance midpoint of 3.25% for the year, which is 145 basis points better than our prior midpoint. My appreciation to all my outstanding onsite and corporate colleagues, their hard work and dedication to our customers and to supporting each other. Switching to capital allocation, we are seeing more transaction activity. As the interest rate climate stabilizes and sellers and buyers cap rate expectations coalesce around 5%. Transaction volumes in our markets in the second quarter of 2024 was almost triple what it was in the first quarter and double what it was in the second quarter of 2023. As you saw in our release, during the second quarter, we acquired one property in suburban Boston. And subsequent to the end of the quarter, we acquired a property in Atlanta and one in Dallas. Alec Brackenridge, our Chief Investment Officer, is here to answer your specific questions in a moment. But generally speaking, we are buying recently built properties in our expansion markets at a basis that compares well to replacement costs and underwriting a 5% forward cap rate with our pro forma assuming further degradation of rents, but also assuming the benefits in year one of our more focused delinquency and vacancy management processes. In year two, as we get the acquired properties fully integrated, into our superior operating platform. We are assuming that we can pod the acquired properties with our other nearby properties as we obtain scale in these markets and efficiently share employees across properties as we do in our coastal established markets. While we acknowledge that current rent levels are weak in these expansion markets and likely to remain so in the near term, in the longer term, we see relief on the way that starts in these oversupplied markets have collapsed and deliveries in 2026 and in 2027 are likely to be much lower than both current levels and historical levels. These expected lower supply levels underpin our property acquisition underwriting in outer years where we expect a significant rental rate recovery. We are excited to acquire these properties at a basis that we see as highly favorable and add properties with strong cash flow growth prospects once supply levels normalize in a few years. The entire equity team also looks forward to demonstrating our core competencies of smartly acquiring and efficiently integrating new acquisitions. And with that, I'll turn the call over to Michael Manelis.