Good afternoon, ladies and gentlemen, and welcome to AvalonBay Communities Fourth Quarter 2024 Earnings Conference Call. Your host for today's conference call is Mr. Jason Reilley, Vice President of Investor Relations. Mr. Reilley, you may begin your conference call.

Thank you, Sherry, and welcome to AvalonBay Communities Fourth Quarter 2024 Earnings Conference Call. Before we begin, please note that forward-looking statements may be made during this discussion. There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There is a discussion of these risks and uncertainties in yesterday afternoon's press release as well as in the company's Form 10-K and Form 10-Q filed with the SEC. As usual, the press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's discussion. The attachment is also available on our website at www.avalonbay.com/earnings, and we encourage you to refer to this information during the review of our operating results and financial performance. And with that, I will turn the call over to Ben Schall, CEO and President of AvalonBay Communities for his remarks. Ben?

Thank you, Jason, and thank you, everyone, for joining us. I will start with a brief synopsis of Q4 and 2024 results and then turn to our view of the strategic focus areas that we are confident will continue to deliver superior growth in 2025 and in the years ahead. Kevin O'Shea, our Chief Financial Officer, will provide our outlook for 2025 and the components of growth on a year-over-year basis. Sean Breslin, our Chief Operating Officer, will then cover the macro and micro setup for 2025 along with our latest market-by-market expectations. And Matt Birenbaum, our Chief Investment Officer, will discuss our rich menu of investment opportunities. Let me start by expressing our condolences to those who lost loved ones in the L.A. fires last month and to all those impacted by the horrific damage. While we were fortunate that none of our communities incurred meaningful damage, some of our associates were impacted, including a few who lost their homes. At AvalonBay, in keeping with our core value of a spirit of caring, we activated our internal emergency relief programs to assist associates and provided incremental funding to our long-time partners at the American Red Cross. I also want to thank our wider L.A.-based residential services team led by Eric Ostgarden for their tireless efforts and dedication through these events. As I look back on Q4 2024, we had a very successful year, delivering revenue growth of 3.4% and core FFO growth of 3.6%, as highlighted on Slide 4. Our suburban coastal portfolio with steady demand and limited levels of new supply continue to outperform. Our operating model transformation drove incremental revenue and operating efficiencies, and our lease-ups exceeded expectations, driving incremental earnings and value creation. We also remain nimble in capital allocation and sourcing during 2024. We increased our development starts by almost $200 million to $1.1 billion, and we proactively raised growth capital sourcing $2 billion of new capital at an attractive 5.1% initial cost. As we head into 2025, we expect much of our operating and investment momentum to continue and are confident that our strategic focus areas, as outlined on Slide 5, will continue to deliver superior internal and external growth for shareholders. Slide 6 details our successes and key next steps in our operating model transformation. As of year-end 2024, we're generating an incremental $39 million of NOI from these initiatives, running $2 million ahead of plan. In 2025, we expect to generate an additional $9 million of revenue and operating efficiencies and we are well on our way to our updated goal of $80 million of annual incremental NOI over the next few years. We continue to be one of the industry leaders in the utilization of centralized services which is now handling more customer-facing interactions, including an expansion this year to provide centralized leasing support. We also continue to be at the forefront in the use of AI in the apartment industry, having been an early investor and adopter. Our investments in technology and centralized services, along with the efficiencies we achieve in managing clusters of assets are providing meaningful scale benefits for our platform and driving incremental NOI throughout the existing portfolio. As investors, you can see these results in various financial categories. For example, our implementation of ancillary services for residents resulted in a 15% other rental revenue growth in 2024 and is projected to produce almost 9% growth in 2025. In the area of labor efficiencies, our same-store payroll expense declined in 2023 and was 0 in 2024. I'd like to thank our operating teams for their continued execution of these initiatives and delivering these results. Importantly, the benefits we're generating via our operating initiatives also facilitate external growth with new assets becoming more valuable on our platform, allowing us to underwrite incremental yield on acquisitions and new development. Slide 7 highlights our continued progress in optimizing our portfolio for superior growth. In the near term, our conviction for our suburban coastal portfolio is reinforced by the outlook for both steady demand and limited new supply. In the medium to longer term, we also believe that our suburban coastal portfolio is well positioned to capture future rental demand, particularly the lifestyle preferences of many aging millennials and downsizing baby boomers. We're now 73% suburban, up from 70% just a year ago, making strong progress toward our 80% target allocation. We're also focused on further optimizing our portfolio by increasing exposure to select Sunbelt markets and submarkets as we detailed at our Investor Day; an increasing number of AvalonBay customers live in these markets, and we also see the benefits of diversifying away from certain risks, including increasing our exposure to areas with less regulatory risk. We increased our expansion market presence to 10% from 8% in 2024, and we expect to make further progress toward our 25% expansion market target in 2025 and believe that we're in an attractive window to facilitate this portfolio shift by acquiring and developing assets at a cost basis meaningfully lower than it has been over the past few years. Our third strategic focus area, as referenced on Slide 8, is continuing to leverage our unique development capabilities to generate consistent and accretive external growth. In 2025, we are planning to increase development starts to $1.6 billion at a time when overall starts in the industry will be coming down, allowing us to secure stronger deals and returns. These developments will also face less competition when they lease up in roughly 2 years' time. By the end of this year, we expect to have $3.5 billion under construction, which is 50% higher than where we are today, setting the stage for a further uplift in earnings growth and value creation in 2026 and 2027. We plan to fund the bulk of this new development from the equity capital that we proactively secured last year as highlighted on Slide 9. In total, we sourced via equity forwards $890 million of equity at an average price of $226 per share at an initial cost of around 5%. Our balance sheet is as strong as it's ever been, which provides the capital to leverage our strategic capabilities to fuel further growth in 2025 and beyond. And with that, I'll turn it to Kevin to discuss our initial 2025 outlook.

Thanks, Ben. On Slide 10, we provide our operating and financial outlook for 2025. For the year, using the midpoint of guidance, we expect a 3.5% growth in core FFO per share, driven by our same-store portfolio and by stabilizing development, partially offset by the impact of funding costs associated with capital markets and transaction activity. At our same-store residential portfolio, we expect revenue growth of 3%, operating expense growth of 4.1% and NOI growth of 2.4% for the year. For development, we expect new development starts of about $1.6 billion this year and we expect to generate $30 million in residential NOI from development communities currently under construction and undergoing lease-up during 2025. As for our capital plan, our outlook calls for $2.1 billion of capital uses consisting of $1.3 billion of investment spend and $835 million for debt maturities and amortization. In terms of sources, we anticipate raising new capital of $960 million in 2025, which we currently assume will be sourced from the unsecured debt issuance later this year. Additionally, we expect to sell our outstanding forward equity contracts to source an incremental $890 million in 2025, which brings total capital to be sourced to $1.85 billion this year. We also expect to generate about $450 million in free cash flow after dividends in 2025. As a result of this capital plan, we project unrestricted cash at year-end 2025 of about $275 million. On Slide 11, we illustrate the components of our expected 3.5% growth in core FFO per share to project $11.39 per share in 2025 from $11.01 per share in 2024. We expect $0.31 per share of earnings growth to come from NOI growth in our same-store and redevelopment portfolios. And we expect another $0.33 per share of earnings growth to come from NOI from new investment, primarily from development. Partially offsetting these sources of growth is an increase of $0.29 per share from capital markets activity. Within this bucket, we've called out on the slide the components of capital markets costs, including lower interest income of $0.13 per share as our projected cash positions will be lower on a year-over-year basis in 2025. And an $0.08 impact from higher share count as we sell our equity forward contracts over the course of this year in connection with matching funding development starts. These 2 items combined for $0.21 of the $0.29 from costs of capital markets activities. As for the remaining $0.08 of costs from capital markets activity, these consist of modest headwinds from refinancing existing debt and net disposition activities, partially offset by modestly higher capitalized interest and earnings growth from SIP activity. So with that summary of our outlook, I'll turn it over to Sean to discuss our operating business.

Alright. Thanks, Kevin. Moving to Slide 12 and the outlook for apartment demand in 2025. Third-party forecasts reflect a moderating but healthy environment for job and wage growth, with wage growth specifically in the high 3% range, which should support relatively stable effective rent growth throughout the year. For our portfolio specifically, we're also likely to benefit from the expected increase in job growth in 2 important sectors, professional services and information, which over-index to our established regions and produce above-average wages. Growth in these sectors was relatively weak in 2024 but is expected to rebound nicely in 2025. Turning to Slide 13. Demand for apartments in our established regions will continue to be supported by 2 other important factors: first, somewhat stable rent-to-income ratios which remained below pre-COVID levels given healthy income growth over the last few years and indicate rental affordability in our coastal markets shouldn't be a material issue. And second, the relatively unaffordable nature of for-sale housing in our established regions. Currently, renters looking to trade into the median-priced home in our established regions would experience a cost increase of more than $2,000 per month relative to the median-priced department, excluding the ever-rising cost of ensuring that home, which has risen materially over the last few years. Pivoting to Slide 14 and the outlook for supply, our established regions are expected to see the lowest level of supply as compared to both U.S. overall and the Sunbelt, with new deliveries representing just 1.4% of stock. And when you look at our suburban submarkets, we're roughly 3/4 of our same-store portfolio is located. The story is even better, as suburban deliveries are only forecast to be 1.2% of stock in 2025. Additionally, as we look beyond the current year, it's important to remember that it can often take years to get a new development entitled in our suburban coastal markets, so we may experience low levels of new supply in these regions for an extended period. Moving to Slide 15 and our outlook for 2025 revenue growth. There are 3 primary drivers of our expected 3% increase in same-store total rental revenue growth. First, higher lease rates, which reflect our embedded growth from last year and our forecast for like-term effective rent change of 3% for the calendar year 2025. Second, strong growth in other rental revenue, which is estimated at almost 9% in 2025 as we continue to deploy various operating initiatives; and third, improvement in uncollectible lease revenue from residents which is forecast to decline by approximately 40 basis points from 1.8% in 2024 to 1.4% in 2025. Turning to Slide 16. Our established coastal regions are expected to produce rental revenue growth north of 3%, while the expansion regions are projected to deliver sub-2% growth with heavy levels of unleased inventory from 2024 and new deliveries in 2025, continuing to weigh on near-term performance. In our established regions, the Mid-Atlantic is projected to lead with mid-4% revenue growth followed by Seattle in the low 3s, Northern and Southern California at roughly 3%; and then New York, New Jersey, and Boston in the mid-2% range. Moving to the outlook for operating expense growth on Slide 17. We expect same-store operating expense growth of 4.1%, consisting of an organic growth rate of 3% and the net impact of profitable operating initiatives, adding 50 basis points and the phase out of property tax abatement programs, most notably in New York City, adding another 60 basis points during 2025. Additionally, we expect operating expense growth to be higher in the first half of the year as compared to the second half for several reasons, including year-over-year comp issues related to our Avalon Connect deployment, our renewal for insurance in 2024, and merit adjustments for our associates, which all occur in the first half. Now I'll turn it to Matt to address our investment activity for 2025.

Alright. Thanks, Sean. Turning to Slide 18. We are looking forward to an active year across our various external investment platforms. We expect to continue to ramp up our sector-leading development platform with $1.6 billion in new starts planned at yields in the low to mid-sixes. We also look to continue to be active in the transaction market with portfolio trading activity as we pursue our long-term portfolio allocation goals, selling assets out of our established coastal regions and redeploying that capital into acquisitions primarily in our expansion agents. Given the decline in operating fundamentals and associated asset values in many of our expansion regions over the past two years, we view this as a more attractive relative trade in the current environment and we'll look to increase our portfolio trading where we can. Our structured investment program or SIP, which is our mezz lending platform to provide high-yield capital to merchant builders in our markets, we have continued to be highly selective and did not originate any new loans last year. However, we do have several attractive opportunities in the current pipeline and expect to be able to grow this book of business from its current $190 million balance another $75 million in 2025, as we advance towards our program goal size of $400 million in total. We continue to grow value-add investment in our portfolio, with highly accretive opportunities to add more resident solar, kitchen, bath renovations, and accessory dwelling units in California. Slide 19 provides a bit more color on our development starts for the year. All are located in suburban submarkets and are less expensive wood frame construction, with the volume concentrated in our expansion regions and in California. It has been exceedingly difficult to get the mask to work for new starts on the West Coast for the past several years, as reflected in the extremely low levels of supply in those markets. This should provide strong support for future performance for the over $500 million in new development we plan for Northern and Southern California in 2025. With that, I'll turn it over to Sean to wrap things up.

Thanks, Matt. To recap, 2024 was a very successful year for AvalonBay Communities, Inc., with the organization delivering strong financial and operating results. Going forward, we continue to execute against our strategic focus areas with a laser focus on delivering superior growth. Apartment fundamentals in 2025 continue to look favorable in our established regions. We have a rich menu of investment opportunities and have a balance sheet well-positioned to pursue accretive opportunities.

With that, I'll turn the call to the operator to facilitate questions. Thank you. If you would like to ask a question, please.

Thanks for taking my questions. Should we think about the development accretion you're going to see in earnings this year versus last year? Obviously, you have the capitalized cost moving higher, but not sure if there's an offset in terms of total increasing capital cost. So I was just trying to understand how you're thinking about potential for earnings accretion this year versus last.

Yeah, Eric. This is Kevin. There's obviously a number of puts and takes that go into that calculation. You do have slightly higher capitalized interest this year, about six cents. On the other hand, we do have lower occupancies this year versus last. We have occupancy this year in our outlook about 3,000 units. Last year was about 2,200 units, so a little less of that. Some of that occupancy fall-off is a little bit in the front half of this year. So there are other things going on as well. We've got, as you can see, lower cash levels, so lower interest income. And then also, we have the equity forward issue that will increase our share count relative to 2024. Our expectation in regard to the equity forward is probably we're likely going to be pulling down those shares in the half of the year. When you roll it all together, roughly, we anticipate about 15 cents of growth from our investment platforms primarily from development. It's really kind of a few areas. The NOI from investment, 33 cents, SIP net earnings growth, maybe around three cents, and higher cap interest about six cents. And then partially offset by the lower interest income, 13 cents. The share issuance under the forwards is about 98 cents, and probably another six cents attributable to the net dispositions that we used from the development activity. So that's how you get to the 15 cents give or take. And that's about 140 basis points of growth all in. That's one way to sort of look at it.

You've talked about continuing to deploy capital in the BTR product, liking it, given the large units and suburban locations. I guess, are there any additional challenges to developing or operating those communities that you've seen thus far versus more traditional multifamily? To the extent that there are some portfolios that are being marketed of products that are akin to what you would develop, you know, would you be willing to take a look at those?

Yeah. Eric, it's Matt. To the extent that there are portfolios that are aligned with our strategic priorities, we would absolutely take a look at them. I will tell you that as it relates to BTR, a lot of what's been built to date has been in tertiary markets or in pretty far-flung kind of third-ring suburbs of our major markets. So not a lot has been out there. We did buy the one asset last quarter in Austin that checked all those boxes. It was 100% three and four-bedroom townhomes. So we expect we will probably grow more of that product through either DFP where we're funding kind of middle-market builder developers of the product or building more of it ourselves. We have a number of communities we expect to start this year that have garden and townhome components to them as well. We started one of those last year as well in Austin. So that's more likely to be the case, but we're certainly open to it. And on the operating side, we don't really have enough history of operating 100% BTR communities to speak to it yet. Again, we do have several thousand townhomes in mixed communities within our own portfolio, and I'm not sure the profile of those has been materially different.

Yeah. The only thing I would add, really, Eric, is if you think about the way people operate BTR, particularly for these smaller communities, they typically have 100 to 150 units. There's a maintenance team and a sales team that rotates from community to community. It's more where the multifamily industry and for us specifically, I've been moving over the last two or three years is to have a more mobile-enabled flexible workforce. So I think it's pretty well-aligned to the extent of the assets, to Matt's point. Or with any reasonable proximity of core multifamily assets, it makes it relatively easy for us to operate those.

Great. Thank you for taking the question. Can you provide more color on your thoughts on new leases versus renewal leases and what the trajectory looks like throughout the year? If you look at slide 12 of the presentation, it shows a meaningful pickup sequentially in the job outlook, employment outlook. So I'm just wondering, do you anticipate a similar acceleration into Q4 as you did last year?

Yeah. Jamie, this is Sean. I'm happy to take that one. So yes, as I mentioned in my prepared remarks, we're expecting like-term effective rent change to average 3% for the year. To your point, we are expecting slightly stronger growth in the second half of the year as compared to the first half of the year, which is actually the opposite of what occurred in 2024. Combination of different factors influencing that in terms of year-over-year comp issues, more declines in supply expected in the second half of the year as opposed to the first half of the year, and various other things. So slightly better growth in the second half of the year is the way to be thinking about it today.

Okay. But can you provide more granularity on what you're thinking on new leases versus renewals? And specifically, in the fourth quarter, this tends to be the seasonal slowdown. Are you still expecting a pickup? I know in Q4 you expected an inflection higher, but it didn't play out. Are you thinking of something similar this year?

Yeah. So for the full year, the expectation is that renewals will average probably in the mid-fours, and new move-ins will average kind of in the mid-one percent range. And then as it relates to the first quarter, consistent with historical norms, we would expect sequential improvement as we move through the first quarter into the prime leasing season. So as it relates to Q4, we did have slightly softer rates on both new move-ins and renewals. Given slightly lower occupancy, but net net, it wasn't terribly material given the volume of leases is pretty light during those two months.

Okay. And then I guess just sticking with the Q4 result, I mean, were there any markets that surprised you? I'm looking at what you provided in the earnings release. I think just Denver seemed like it really rolled over. Nothing else seemed to really stand out. So can you provide just color on what played out differently than you expected or if there are any markets that caught you off guard?

Yeah. So as you pointed out, Denver was the only one that’s maybe a little bit of a surprise. I think if you think of the fourth quarter, one thing to keep in mind here is on a net basis, it was not terribly material. We're talking about the Q4 shortfall being about $700,000 on $670 million of revenue. For the full year, total rent to revenue growth was about 3.42%. So it was up three or four basis points from what we originally anticipated. The primary driver being, as I mentioned, slightly higher vacancy than we anticipated, which did impact the move-in and renewal rates across most of the markets as we moved through November and December. So net net, not a material number, but at the margin when you have a small sample size of leases, it can move the rent change calculation.

Okay. So it sounds like your outlook in Eastern Markets hasn't really changed.

No. No. I'd say, like I said, it was a little bit of a rounding error in Q4. But the fundamental outlook for 2025 is intact.

Okay. We're going to move on to the next one, which is Austin Wershmidt with KeyBanc Capital Markets. Please proceed.

Great. Thanks, and good afternoon. I just curious if you guys have seen any pickup in the transaction market and just how that's kind of playing into your ability to use the disposition capital to rotate into the expansion markets and whether you still expect to be net neutral on the buy-sell side this year?

Yeah. Hey, Austin. So the transaction market has been pretty volatile, I would say. We did see a pretty significant pickup in Q4. Fourth quarter multifamily closings were up quite a bit over the fourth quarter of 2023 and over the third quarter, but almost all that business was deals that priced before when the tenure was closer to four than four and a half. And, you know, what we see is anytime that the tenure starts to get down towards that level, transaction volume starts to pick up because there is a lot of capital that's still on the sidelines, but when you see rates move back up to where they are today, the volume comes back down again because cap rates for most of these assets are trading still below the debt rates. And there's just limited buyers that will fit that profile. So we saw a number of larger deals closed in Q4. I would expect Q1 to be much quieter. We just had the big NMHC conference. If you'd asked people 90 days ago, they would have said there are going to be all these listings come out and all geared up. Now they came out and they all said, yeah, maybe seven and a half. They need to be some more stability in debt rates for the markets to pick back up. For us, we wound up being a net seller of a couple hundred million last year. That was not our expectation. We thought at midyear that we were going to be net neutral. We did get more sold than we expected relative to what we bought. So we start the year and we have a couple of disposals currently working in the market that we expect to close here in Q1. So we start the year with a little bit of a head start on our trading activities. We do think that we have some spending money so to speak and we are looking to be more active understanding though that the limit is there. Are there enough for sale that we would want to buy? And, you know, that has yet to be seen because we are selective in terms of what fits our box.

So I guess, I mean, is the approach to continue to kind of have assets teed up to give you that buying power to the extent that the market does free up and you see opportunities arise, and I guess, how do you do you kind of take advantage of where the balance sheet is today with the forward equity available to fund developments, you know, stock prices at a level you guys have been willing to issue some equity. And, clearly, there's fundamental improvement ahead over the next few years within those expansion markets. So just curious how you're thinking about all the different sources and uses and whether you'd be willing to look at other sources of capital if the disposition market remains volatile.

Yeah. I'll speak to that a little bit, and Kevin may want to chime in as well. But yeah. So the first thing is we are not counting on the disposition market to fund our development. We're looking to grow development significantly this year, and that is being funded primarily through the equity forward that was sourced last year and through free cash flow. So again, we're starting from a good place where we're a little ahead on our disposals relative to our acquisitions. And, yes, to the extent that we see more, we continue to see buying opportunities. We're hoping we can increase our asset trading to roughly a billion dollars on both sides, both buying and selling this year. And to the extent we see the buying opportunities we like and you're right, the basis is getting pretty interesting. We can certainly use some of the disposals we've already prefunded so to speak. We will pull more distill assets off the bench and then, you know, we can also consider other sources of capital to the extent the yields were appealing.

Yeah. Austin, this is Kevin. Maybe just to add a couple of things. I think you're looking at it the right way in Matt's comments. Tie into that. I mean, we are in a strong position from a financial point of view. We've got a lot of capacity to lean into opportunities should they make sense to do so. Naturally, we need to look at the incremental return relative to our funding cost and given where debt rates are, that does narrow the opportunity set somewhat. But I think what that really speaks to is not only our capacity to be flexible but having a mindset of being nimble and responding to opportunities, not only in the investment market but also the capital markets to try to create that spread so that what we can deliver is cost-effective capital to the investment uses that kind of move us down the field towards our strategic objectives in terms of portfolio positioning and funding development.

And also, now that I'll add a third area of emphasis which is increasingly as we think about opportunities, we also want to bring our strategic capabilities to bear. Particularly the operating model initiatives. You know, we're now in our underwriting. You know, underwriting on specific new acquisitions and new developments to tune a 30 to 40 basis points of incremental yield by having those assets on our platform. I also want to emphasize that we're now at a point in most of our expansion markets where we've got our teams in place, we've got the density of assets starting to build up, and I really do feel like we're at a point where we can leverage those investments we've been making over the last four to five years to step into further growth.

Great. Thank you. Just a big picture, Ben, on, you know, recent demographic shifts and changes that we're seeing. Anything impacting your decision on the future allocation of suburbs for 80%? Are you still confident to stick with that at this point? Is there any thought to decrease that?

Yeah. Appreciate that, Jeff. And we go through a fairly robust updated strategic assessment each year looking into trying to identify shifts that have happened that as we think it forward a couple of years, we want to start to get ahead of. So that's a constant process, constant part of how we think about evolving our platform. Other demographics are obviously longer-term trends, migration shifts, and the regulatory environment. So we are still at this point focused on moving increasingly to the suburbs, with a target of getting to 80% suburban exposure. We made good progress this year. The other big shift is our expansion market shift to get to 25%. The other elements you're increasingly hearing us talk about is evolution of product. It's not just market and submarket, but it's also the right product at the right price point. I think we have taken a different approach in terms of how we've built out our portfolio over time, but particularly recently in the expansion markets with a heavier suburban focus and a focus on lower density, slightly older products that we believe will be less susceptible to new supply and deliver stronger growth over a cycle.

Okay. Thank you. And then my second question, probably a tough one to answer given the changes we're seeing in tariffs. But development costs and the risk of tariffs. We've seen homebuilders come out with projections of higher costs. Of course, I'm assuming that would really hit garden-style, but how should we think about the risk of tariffs and the development costs? I think they're fairly set in 25, but 26, how are you thinking about it?

Yeah. I'll start at a high level and ask Matt to talk a little bit more specifically. It’s challenging at this point in time to forecast what policies are going to come through. Equally challenging to figure out what the flow-through of that's going to be from the economy down to the apartment market, tariffs being one of those areas. Where we can, we are trying to get ahead of those potential impacts. So thinking about securing supply channels, thinking about locking in pricing. You know, aspects of it could flow through to some contract services and, you know, on the development construction side, not huge swings, you know, possibly some headwinds there. Now you want to provide some more details?

Yeah. We do look at it all the time. And Jeff, I tell you, when you think about what goes into the cost of a new apartment community, land is on average maybe 15% of the total budget, 10 to 20 maybe even 25 depending on location. But on average call it 15. Soft costs, interest, A and E, permits and fees, overhead is probably 30 to 35%. So your hard cost is probably about 60 to 65% of the total capital cost. Of that cost, most of it, probably two-thirds of it is labor, depending on the trade. So we have gone through and if you look at it on a typical deal for us, you know, based on assumptions you make about what percentage of product is foreign sourced and so on, it might add a couple percent to a total budget, maybe $5,000 to $7,000 a unit if it all gets a 100% pass through. So that would be a little bit of a headwind to future business. I think much more important is labor. You know, what makes up hard cost? It's the materials. That's the smallest piece of it. It’s the labor, and then it's the subcontractors' profit margin. What we're seeing in the current market today with the slowdown in multifamily starts and with the slowdown in single-family starts. The subcontractors are hungry for work. So we're seeing great success on the buyout right now on the things that we currently have in the market. You can see that even in our current the deals we just completed this past quarter are actually finishing under budget, the first time I've been able to say that in probably six years. The deals we have currently under construction are also tracking a little bit under budget. So, you know, much more of it's going to depend on the macro environment—the subcontractor, the trade base, how busy they are, and ultimately their labor costs. But right now, there are more tailwinds than headwinds. But obviously, that could change.

Thank you. And then just one more if I can. On the prior call, the company was a bit cautious on Boston. Can you talk about Boston, your thoughts between supply and demand? And then, you know, is pharma biotech slowing down in Boston more than expected?

Yeah, Jeff. This is Sean. I would say our experience in Boston is relatively positive. We do not have a cautious outlook for Boston whatsoever. It has been a strong performer, particularly our primarily suburban portfolio. We're well insulated from new supply; a highly educated, high-income workforce there in Boston. We don't have a lot in the sort of inner core; we have a handful of assets where there's been a little more supply. So maybe just be portfolio differences that are creating a bit of a cautious notice compared to our experience.

Thanks. I was hoping to get what the development completion expectation is for this year, relative to the $1.3 billion that was completed last year?

Yeah. Nick, it's Matt. I think we're only looking at completing about $300 to $350 million this year. So that's why you're going to see an expectation if we start building $600 million this year, that would be lower than last year. The development underway would grow from call it $2.2 billion today to $3.5 billion by the end of the year.

Okay. That's helpful. Thanks, man. And I guess the follow-up on that is, you know, I know page 11 of the presentation, you guys give that helpful math. On the NOI from new investment and then the capital market activity and there's not the net of those two is a slight benefit this year. So I guess based on what you just said that 33 cents from new investment. That's a sort of lighter number I guess than normal. And perhaps the capital markets activity, you know, is eating into that more so than it would in a given year? Meaning that this feels like this might be a little bit of an abnormal year for how development overall is contributing to earnings growth. Is that the right way to look at it?

You know, Nick, probably, that's probably true to some degree. The capital costs are a little heavier this year. You do have a cap interest benefit of six cents that goes the other way. And then per your discussion with Matt, we're delivering a little bit less. Our occupancies this year, which is what gives us this development NOI, is expected to be a little less this year. At 2,200 per units this year versus 3,000 units in 2025. So when you roll it all together, you can see this in our development NOI itself, which is a component of that 33 cents. For 2025, our development NOI is expected to be $30 million, whereas last year it was a higher number last year at about, I think, probably $40 to $41 million or something like that. So when you put it all together, there's a little bit less development NOI coming through. But there's some puts and takes. I guess I'd refer you to the answer that I gave to Eric at the top of the call here in the Q&A session, where I walked through the development accretion with our SIP earnings growth, what we think we get from our investment platforms in terms of earnings growth this year is about 15 cents, which equates to about 140 basis points of growth. That's probably a little lower than the normal year, which is probably more like 150 to 200 basis points contribution from our investment activities. Again, if you want to walk through this offline, you can certainly do that.

Thanks. For the time. Matt, just two transaction market questions for you. I'm curious in the markets that you're looking to buy in, what rough range of replacement discounts or replacement costs are you able to buy at? Because I know a lot of folks in the private market are quoting discounts to replacement costs, but it’s a really, really subjective figure and, that you can pick any number to justify the price you're paying. So I'm curious from what your team is seeing, given your good detail or good clarity on construction costs and where you could buy in this in the same market.

Yeah. It is something that we also look at pretty closely because those are both investment options available to us, and we're both developing and buying in many of these markets today. It depends on the submarket; it depends on the product type. A lot of what we're looking to buy is, call it, five to ten years old, and it might be at a 10 to 20% discount to replacement cost. That's not inappropriate, you know, brand-new products should sell at a higher price per door than ten-year-old, five to ten-year-old products. They'll generate more NOI. There are markets where you can probably buy brand-new product in lease-up or coming right out of lease-up below where today's replacement costs are. Those are not the markets and the submarkets we're generally looking at. We're trying to stay away from those high supply submarkets, so what we've been looking at anyway is kind of lines up in a way that makes a bit more sense.

Okay. And last one for me. I briefly caught your portfolio trading commentary. Could you just expand on that? It sounds like you're more optimistic about getting portfolios done. Is that a function of wanting to accelerate your portfolio shift in the suburbs and the expansion markets, or is it a function of you're seeing better pricing on portfolio acquisitions?

Yeah. No. I mean, what I meant to say anyway was if a portfolio that aligned with our strategic objectives came to market, we would definitely be interested in pursuing it. We're in a our balance sheet would support it. So we certainly could pull the trigger on something that was attractive. We're not necessarily at this moment seeing that. So I'd say the conditions are our balance sheet supports the conditions are there. More broadly, we think it's a better time to make the relative trade than maybe it has been in the last couple of years. Therefore, our hope is that we will be able to increase our portfolio trading activity further, but we haven't seen anything yet.

Great. Thanks for the time here. Wanted to ask about the Los Angeles market. Obviously, you know, really unfortunate wildfires and situation there. I was wondering if, you know, in your portfolio, you've seen anything on the ground whether it's leads or activity, that could suggest there could be some incremental benefit to the portfolio just from a need for more rental properties. And then, on the other side of it, anything from a headwind perspective, be it more towards him or anything else that could impact operations on the other side.

Yeah. Adam, this is Sean. First, as it relates to your initial question, you think about the displacement and what happened there, which certainly is tragic, as you might imagine, what we have heard on the ground from our teams is that most of those customers, as you might expect, are looking for single-family rentals, larger floor plans, preferably in the same school district if they can get it, which is certainly challenging, obviously, given the level of destruction that occurred. We've seen a little bit of an uptick, you know, I would say over the last three weeks, maybe 15% of our leases around 60 leases or so have gone from people who have been displaced. But it is very specific as to assets and submarkets Pasadena, Glendale, Santa Monica, Burbank, you know, some of those submarkets. You know, it's a handful of leases here and there that add up to about 60 leases. So it's hard to know where it's going to go forward as the insurance process evolves and things of that sort, but that's what we've experienced thus far. And as it relates to potential adoption of any eviction moratorium, and or rent freezes, we have not contemplated that as part of our guidance. There has been chatter about that. The city council at it a week ago. They sent it back to housing committee. Housing committee is reviewing it, sending facts to the council; there's a little bit of ping pong going on right now. We don't know exactly how that may come out. But, you know, we hope that they don't take action. Certainly has a negative impact on people who have been displaced. We need more housing for those folks, not less. So we'll see where it comes out, but we don't know anything definitive at this point.

Got it. That's helpful. And then looking at that slide 12 with the kind of job growth, you know, any kind of employment forecast for this year? And I don't know that I have a specific question here other than just, you know, I think being a little bit surprised maybe at kind of the acceleration in jobs for the rest of this year. I know these are from third parties, so the level of granularity that you guys have may not be super robust here, but just the extent you can talk about, you know, the underlying assumptions or thought process there, I think would be helpful.

Yeah, Adam. It's Ben. Yeah. We continue to look at Nave, the National Association of Business Economists, as the starting point for our job and wage assumptions going into the year. As you call out, moderating growth. Last year, we ended up having roughly about two million jobs generated across the country. Nave's consensus is that figure is coming down into roughly the million and a half type of range, fairly consistent growth throughout the year. Sean called out in his prepared remarks; we are hopeful that we'll benefit from a better mix of jobs this year given potentially more of the growth occurring in the core AvalonBay Communities, Inc. types of industries.

Yeah. One thing just to clarify and make sure you're interpreting the chart correctly is that chart on the right only reflects two job classifications within our Southeast regions. It's not overall job growth. So keep that in mind that it's talking about an acceleration in those specific categories of employment as opposed to that being the cadence of overall job growth throughout the US.

Hey. Good afternoon, guys. I want to go back to your comments about the breakdown between new and renewal and blend for the year. Can you break it down just a little bit further and tell us how sort of the established markets relative to the expansion market might look under the same framework?

Yeah. So as I mentioned, we expect to see an improvement in effective rent change as we move through the year, which would be normal with the second half being slightly stronger than the first half, which is the opposite of what occurred in 2024. So that's, you know, kind of where we are as it relates to the sequencing by quarter. As it relates to the expansion regions versus the established regions, the first thing I would say is, the majority of our portfolios obviously are established regions and we're expecting rent change to be healthier in those regions as compared to the expansion regions. The expansion regions, you know, we're talking about a handful of regions here. So I wouldn't necessarily average them because you have a lot of different things happening across those. Charlotte, particularly urban Charlotte, is pretty beat up. It's likely gonna be flat to negative. Dallas will likely be positive this year, because of a pretty rough 2024. In the two to three percent range positive. Then Florida and Denver, Florida is expected to be very modestly positive, I call it roughly flat to know, plus 50 basis points. And then as for Denver, so better about Denver than what is represented by the market overall given the distributed nature of our assets across suburban submarkets. That being said, it's experienced a level of supply that has impacted the market more generally. So it would also be below the established region average. I would be hesitant to draw up sort of a broad conclusion across expansion regions, but give you those insights as it relates to each one.

You mentioned wanting over time to grow the SIP book to maybe around $400 million. I think we've heard comments on other calls that that particular product in the marketplace is becoming increasingly competitive. How do you guys sort of be uber selective and still hit your growth target there?

Sure. Rich, I guess what I would say is we do think that we bring terms of the competitive environment. For us, the issue hasn't been losing deals to other providers of that slice of capital. It's been finding deals that have been underwriting to an appropriate level of safety and margin for us. Relative to where our proceeds are going to stop. So, you know, we're not going as high up the capital stack as we used to go, as maybe earlier iterations went just given what's happened to interest rates and valuations. Last year, there were a lot of deals trying to get capitalized that just were the wrong poor product market fit. They were high rises in a market that really support mid-rise or mid-rise in a market that should only support garden or very aggressive super-luxury rents assumed or something like that. So through the course of 2024, a lot of those deals got flushed out of the system and just didn't happen. And not only did they not happen, eventually, the sponsors just gave up and moved on. So what we've seen recently, I'd say in the last quarter or so, is deals that make a lot more sense. They're in a much better basis. It's a better land deal. It's the right product. It's generally not as ambitious and aggressive in terms of the dense rent level. We think those deals make sense. Our program is strictly mezz to merchant builders. We're not doing the bridge to bridge thing or the recaps, and the reason we're keeping it to that is because it leverages our unique in development, construction, and operations. On the deals that make sense to us, I would say we are a preferred capital provider. We have intercreditor agreements with quite a few primary lenders, both banks and debt funds. They take a lot of comfort in the fact that we are there with them in the lending, in the capital sack because we have a lot of internal data. We know how to look at a deal and understand if it's getting built right and if it's gonna be operated right. We're very competitive on the deals that we want to win, and it's just hoping that there will be enough amount there.

That's great. Thank you.

We have reached the end of our question and answer session. I would like to turn the conference back over to Ben Schall for closing remarks.

Thank you everyone for joining us today and we look to speaking with you soon.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.