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 Parrell, our President and CEO; Michael Manelis, our Chief Operating Officer; and Bob Garechana, 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 Investors 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 Parrell.

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 Garechana 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 at 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 and 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 continue 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 coast 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 in 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.

Thanks, Mark. This morning, I will provide highlights on how we finish the year and give you some color on 2022 revenue guidance and market performance. So first, a big thank you to our teams across the country who have worked so hard during these trying times to deliver these results and are all geared up to make 2022 a terrific year for Equity Residential. The recovery continues despite the presence of the Omicron variant and noise from uncertainty in back-to-the-office plans with tremendous demand to live at our properties, both urban and suburban. We see reopened restaurants, entertainment venues and other lifestyle amenities as attracting our affluent resident base without regard to continuing low office occupancy rates. Absent a government-mandated closure of businesses in cities, which we see is unlikely, the lifestyle that our residents crave is again available in most of our markets and our residents are voting with their feet and pocketbooks to be in these locations whether they anticipate working fully remote, hybrid or fully in the office. Interestingly, we see a little less of this trend in our tech heavy Seattle and San Francisco markets, which I will discuss in a moment. We are currently 96.5% occupied and are on track to deliver about 13.5% achieved new lease growth in January after posting just over 10.5% in the fourth quarter. We reported the lowest turnover in our history for both the fourth quarter and full year 2021 which reaffirms the desirability of our product as our residents signed renewals at record levels with increases that average nearly 11% in the quarter. In addition, our residents received $32 million in rent relief with $15 million of that received in the fourth quarter. This performance has positioned us well for 2022 and what we believe will be the best same-store revenue growth in our history. The majority of our 9% same-store revenue growth at the midpoint is coming from resetting existing leases at current market rates. As of January 1, 83% of our residents were paying on average rents that are about 11% below our current market prices. As we have discussed in the past, we won't be able to capture all of this loss to lease in 2022 because leases will reset over the course of the year either through new move-ins or renewals, and there are currently a few regulations that cap our allowable increases. In addition to capturing this reset, we are anticipating intra-year growth in rates that is more reflective of typical seasonal growth than the steep growth we experienced during the 2021 pandemic recovery year. Strong, continued physical occupancy, particularly relative to the comparably weaker period in early 2021 is also a contributor with the remaining growth projected to come from lower bad debt, improved nonresidential revenues and other income. So far, we continue to see strong retention with the percent of residents renewing expected to be just over 60% in both January and February. We may see some moderation from this high level as the year goes on. But interestingly, in Q4, we did not see much disparity in renewal percent for deal seekers, those residents who had a concession on their current lease versus non-deal seekers, meaning many of our residents are deciding to stay put regardless of the rent increase. While the world remains an uncertain place, we feel good about this expected pricing power, given our net effective pricing trend is currently 27% over 2021 levels and 7% over the same pre-pandemic week in 2020. A key driver of this improvement is the sizable reduction in concession use in our portfolio, which is nearly nonexistent with the exception of Seattle, that I will get to in a moment as I provide color on the markets and how they are expected to contribute to 2022. Beginning with Boston, which is following a normal seasonal pattern with improving demand and pricing heading towards the spring, overall, we're 96% occupied today with a drag from the urban core at 95.5 versus the remainder of the market, which is above 96%. With strong continued demand from lab and life sciences, financial firms, health care and education and very little competition from new supply, we expect this market to produce same-store revenue growth of approximately 10% in 2022. Another positive note is that we continue to see a return of international students and workers to the market. After a difficult period early in the pandemic, the quick turnaround of the New York market has been really amazing. We expect New York to be our best-performing market in 2022 with same-store revenue growth of approximately 13% despite some expected pressure from new supply on the Jersey waterfront in Brooklyn. Demand is very strong, and we have been renewing about 65% of our residents. Occupancy remains above 97%, rates continue to improve, concessions are not being used and pricing is currently 11% over pre-pandemic pricing levels. We expect that Washington, D.C. will be a solid performer in 2022, but will end up as one of our lower producing revenue growth markets at about 4%. This market held up the best of our East Coast markets during the pandemic, and so does not have the same ground to make up. This market also continues to deliver 12,000 or so new units each year, absorption of Class A multifamily has been really strong even during the pandemic, making us optimistic that this absorption trend will continue. Occupancy is steady at 97% and rental rates are following a slightly better-than-expected normal seasonal pattern here. Moving to the West Coast. Both of our tech heavy markets, Seattle and San Francisco, have been slower to recover than other markets. While there is certainly demand, the downtown submarkets are 93% and 96% occupied, respectively. The ambiguity and return to office by big tech employers and quality-of-life challenges are deferring a fuller recovery. We expect that the quality of life issues will improve through a combination of civic engagement and having more activated streetscapes. The tech companies have a role to play here as they balance their growth plans versus employee preferences for work from home in a highly competitive job market. It appears likely that the balance will be met by a hybrid work model which should benefit our business in these markets. But until there is more certainty, some employees will be hesitant to make housing decisions. Longer term, the overall drivers of demand remain positive and we would expect the urban centers of these markets to fully recover because they remain attractive to the many affluent renters that want to enjoy an urban lifestyle there. Also, the tech giants continue to accumulate large amounts of office space, whether through leases or whole building purchases, which indicates that their long-term plans involve some level of in-office. We're optimistic about Seattle's recovery and expect the market to produce same-store revenue growth of approximately 10% in 2022. Our expectations are predicated on the CBD, where we have a large concentration of assets recovering in the back half of the year. Demand is improving. Initial lead and tour volume has ramped up past 2021 levels but our on-site teams are reporting a lack of sense of urgency from potential renters to sign leases right now. Occupancy has rebounded slightly to just over 94.5%. This market is the primary user of concessions in our portfolio with currently about a third of our applications receiving on average just over one month free. Heading down to San Francisco, we are seeing good demand but do not yet have a lot of pricing power. We expect to produce same-store revenue growth of approximately 7% in 2022. San Francisco continues to be the only market in our portfolio that has not gotten back to pre-pandemic pricing levels as we are currently 6% below the same week in 2020. Occupancy is holding steady at 96.5%, and we are renewing just under 60% of our residents. Los Angeles continues to be a solid performer with demand driven by a robust return of the online content industry. Occupancy is running at 97%, pricing power is strong. We expect the market to produce same-store revenue growth of approximately 9% for the year. The percent of residents renewing is the highest we have seen likely due to the impact of local regulations. We expect to continue to renew 65% to 70% of our residents here. Both Orange County and San Diego continue to show remarkable performance with high occupancy and strong retention, supporting very good new lease rents. We expect these markets to produce same-store revenue growth of 10% or greater in the year. In Denver, we have very good demand and expect the market to produce same-store revenue growth of approximately 9% in 2022. Occupancy is strong at 97%, and we're renewing about 50% of our residents. Lastly, a few thoughts on our additional expansion markets of Atlanta, Dallas and Austin. So far, our newly acquired assets are performing well. Demand remains robust and occupancy levels are high. The expansion markets have seen good growth throughout the pandemic, and we expect that growth to continue in 2022. This is an exciting time for the industry and the overall operations of our company. Thank you. I will now turn the call over to Bob Garechana.

Thanks, Michael. Rather than go through a detailed review of our guidance assumptions, which are laid out on Page 4 and Page 27 of the release, I thought I'd take a moment to elaborate on our approach to innovation, our continued investment in our platform and how that's playing out in our financial statements in 2022 and going forward. Over the last couple of years, we've had impressive results in our innovation journey, and it's not over. A few highlights that our property management and operations teams have been busy rolling out. We brought mobility to both the service and sales teams to enable and enhance flexibility. We have artificial intelligence handling 80% of our communication with prospects to lower cost and provide 24/7 service. We've deployed roommate matching functionality on our website to drive additional revenue, and we've moved 97% of our tours to self-guided or virtual, all while increasing our gross rent potential by using data and analytics to improve our amenity pricing. These are only some of the examples of how we continue to advance our efforts to maximize efficiencies on site and improve revenue while meeting the ever-evolving expectations of our residents. We have done so successfully through adjusting our processes, deploying new technology like the artificial intelligence I mentioned and through advancing our use of data to inform our business decisions. We have most visibly seen financial benefit from these endeavors and our ability to successfully minimize our on-site expense growth, particularly payroll. In 2021, we reported negative on-site payroll after reporting less than 1% growth in the prior two years, and we're just getting started. Our focus moving into 2022 continues to be building upon the success we've already achieved. That means continuing to improve our digital customer experience, our business processes and to advance our sophistication and data-driven decision-making tools. This is an area in which we have historically been a leader and expect to continue to excel at going forward. Our approach remains focused on efficiency, marries technology and data and should reduce exposure to expense pressures while increasing revenue growth. In order to accomplish this, we're making investments in foundational areas like centralized teams, IT infrastructure and licensing and data analytics, which is driving a good portion of our forecasted overhead growth in 2022. These investments enable our progress in our innovation journey and have significant ROI that should continue to garner margin improvement benefits in 2022 and beyond. I'll now turn it over to the operator for the Q&A session.

Thank you. We'll take our first question from Nick Joseph with Citi.

Thank you very much. Maybe starting on the transaction side. Mark, you mentioned the $2 billion this year on acquisitions and dispositions, I think, at a 25 basis point dilutive cap rate. How are you thinking about that trade from an IRR growth perspective over the next few years? I know you're buying newer assets and selling older assets. So I just want to understand how you're underwriting that?

Hey Nick, this is Alec Brackenridge. And yes, so we feel like the assets we're buying will have higher IRRs over time. It's a combination of both higher top line rent growth but also less capital demands over time as well. So we feel like we're in a point in time where we have an opportunity to have a really good trade of selling these older properties into newer properties in these markets that are very, very robust.

Thanks. Are you seeing any difference in the buyer pool or competition for the assets that you're trying to buy versus what you're selling?

Just that it keeps getting bigger. The multifamily is clearly a favorite asset class. And we see people that had gone away coming back. And certainly, in our coastal markets that were quiet or like New York, it's full bore. I mean people that were investing only in office are now investing in apartment, people that went down south have come back north. So it's a competitive bid both for what we're selling and for what we're buying.

Thanks. And then just what does 2022 guidance assume for government rental assistance?

Hey Nick, it's Bob. We're roughly assuming maybe slightly below half of what we got in 2021. So in 2021, just to remind the group, we received about $34 million. And so we expect the programs to kind of start tailing off as we go. So about half of what we got in 2021.

Thank you very much.

Thank you. We'll take our next question from John Pawlowski with Green Street.

Thanks for taking the question. Maybe to take Nick’s question a step further, Alec, just in terms of how your team is approaching underwriting intermediate-term growth. So if you went and sampled all the deals you've underwritten on the acquisition side in recent months or currently underwriting, would the intermediate-term NOI growth assumptions be higher or lower for the average Sunbelt deal versus the average Coastal acquisition?

That's a hard question for me to answer in specific, as on every deal is a little different. Every rent roll, obviously, is different. There's a lot of still to be picked up rent growth in both what we're buying and selling. But you're getting it kind of in a different way and some of the things we're selling, there's still maybe some pandemic recovery. And what we're buying, generally, there wasn't a big pandemic downturn. But there's still – the market has moved so quickly. You still have leases under. So net-net, we feel really good about the short and medium-term growth of these expansion markets, but it's coming from a different source.

Hey John, it's Mark. Just to add to that. And the risks are different in each of these markets. So you get into the intermediate term with some of the markets that we call our established coastal markets. And there is a bit more risk of rent control and things like that interrupting rent growth in those markets. I'd also just say that when you look at the growth in some of these markets, we think of the new portfolio is having a bit of a handoff and this diversification is going to serve us well. We do have supercharged growth this year because of the recovery in our established markets. And as we establish the Sunbelt presence, we're going to have more balance. And I think you're going to see just more balanced growth. So maybe there is a little more growth in the Sunbelt and a little less in established, but we'll pick that up and vice versa. So from our perspective, it's sort of a risk-adjusted thought process and a diversification thought process. So maybe the established markets drive the machine for the next 18 months or two years and maybe some of these diversification markets help add power to the engine in outer years.

Okay. Thank you for all thoughts. Final question. Michael, I'm not sure I fully understand why there's been such a large and persistent breakage between net effective pricing trend and the blended reported spreads. So since July, your effective pricing trend been – over 20% above the year prior. So I would have expected new and renewal – acknowledging they're very healthy, out of expected, new and renewal to be closer to 20% than 10% eventually. So I'm not sure if it's regulation or just more time is needed. Any comments there?

Well, I think it's a little bit of both of those factors. So one, as that pricing trend improves, it's a lead indicator as to what to expect on that new lease change and renewal in those forward months. But I think clearly, you're subject to who's moving out and who's moving in, a little bit of the timing of when those original leases were written. And then clearly, we are subject to some of these regulations right now that are limiting our ability, mostly on the renewal side of the business with allowable increases which, in my mind, just defers kind of the rent growth that we were going to see in 2022 and pushes it more into 2023 because we're going to recapture that spread again either through that next renewal or at move out and time of a new lease coming in. So I think you're seeing, too, the trend, if you look at that January kind of trend. You're going to continue to see that growth in these first couple of months of this year with both new lease change and the blended. And then you'll start to see us come up against that comp in the back half of the year, and it will start to moderate a little bit. So I think you're seeing us close that gap with that net effective pricing trend, but I don't think you should ever expect that we're going to fully realize those numbers.

Okay, thank you.

Thank you. We'll take our next question from John Kim with BMO Capital Markets.

Thanks. Good morning. Just wanted to ask about your same-store revenue guidance. You had signed leases at 13% increases in January. You talked about this positive pricing trend of 27% over last year and then 11% loss to lease. And on top of that, your market rental growth, which I'm sure is not really factored into this. But how do you get to the low end of your same-store revenue guidance of 8% just given these other factors?

Yes. Hey John, it's Bob. I'll take a stab at this, and I'll piggyback with Michael, if there's anything. I think when you think about the range on the revenue guidance side, and Michael outlined in his script a little bit, most of the growth is coming from rate, right. And there's different flavors that you just outlined in terms of rate. A lot of that rate is kind of, I'll call it, baked in because it's capturing that existing loss to lease, et cetera. The way you get to the low end of the guidance range is that you don't get as much intra-period market rent growth during 2022, right. So if you think about it as we kind of continue on the pricing trend, the low end would imply that we don't get much intra-period. The higher end would imply that we get more intra-period than what we otherwise anticipated. And the midpoint is slightly above trend, above historical trend intra-period growth. And that's how you kind of balance the range. The range is a little wider than what we've historically done because I do think there is a little bit more potential for volatility given what's out there. But those are kind of the low end, the middle and the high.

And what do you expect as far as the difference between new and renewal leases? They're basically on top of each other in the fourth quarter. I would have thought that you would have had a higher new lease rates, just given it goes straight to market rather than renewals where you may be more difficult to reduce concessions. How do you think – how do you think that goes for the rest of the year?

Yes. So this is Michael. I think clearly, in the first several months of the year, you're going to see that new lease change starts to outperform the renewal numbers. We got pretty good insight into the renewal performance for the first quarter. You can look at what we're quoting for February and March and see that it's kind of right in line. We've been quoting just around 14%. We're achieving around 12% in these months. I would expect that to continue. But on that new lease side, you're going to see a little bit more momentum kick in here as you go January, February and probably even into March, and then you'll start to see it kind of moderate a little bit. And as you turn the corner and get towards the back half of the year, I think those numbers are going to converge together.

Great, thank you.

Thank you. We'll take our next question from Rick Hightower with Evercore.

Good morning, guys. So I guess just to dig down a little bit on – in terms of new and renewals. If we go by market, there are some pretty dramatic differences. I'm looking at San Francisco, but that's not the only example between new lease change and renewal rates in the fourth quarter. But what's interesting, too, is the pattern differs across different markets, right? It's not consistent across the market. So what explains that? Is there something with concessions that's driving that? How do you expect that to trend over the year? I mean, give us maybe a little more detail on some of the market-by-market color there.

Hey, Rick, this is Michael. So I'll just start, I think, maybe, are you focused on the sequential changes that you're seeing across the markets and the differential that you're seeing in the fourth quarter over the third and the momentum?

I'm looking at just for the fourth quarter, the differences between new lease growth achieved and renewal lease growth achieved. And again, San Francisco being a good example of, call it, a 900 basis point difference one versus the other. But again, that pattern is not consistent across all markets.

So I think you got to go market by market and you got to understand the retention. You need to understand the regulation limits of the caps that you're bumping up against. And in certain markets like San Francisco or even in New York, you got to understand the concession use that was in play this time last year or in the fourth quarter of 2020 and that comp period is kind of what's driving some of that. So I would be looking more into that January kind of projection and just thinking about where you see those spreads today and know that the renewal number is probably going to stay like I just said, in that similar range, but you're going to get a little bit more momentum out of that new lease change in some of those recovery markets.

Okay. Okay. Maybe we can dig into it kind of separately off the call. But that is helpful. And then my second question, just on the 25 basis points of, call it, net investment dilution forecasted this year embedded within guidance? I mean I think you guys did a little bit better than that in 2021, maybe versus original expectations. What are the chances that you can exceed that little bit of dilution in 2022 with your investment activity. What would drive that?

Hey Rich, it's Mark. Our goal is not to have any dilution maybe even have accretion, that would be wonderful. But we're trying to do is build a great long-term portfolio, and there are timing issues, too. So I'd just tell you that 25 basis points of dilution is just what's in our model. It's just what's in our guidance. The number could be slightly more or slightly less. Right now, it feels great to be selling these assets in these established markets that are older, they're nice properties, but there are a lot of older assets, they have big capital needs, sometimes regulatory challenges in buying these newer assets in these new markets for us. So that trade even feels like a good deal to us. So I think you'll continue to see us trade even if it's de minimisly dilutive. And again, there are timing issues, too. Sometimes you sell before you buy and things of that nature. So I'll tell you, the goal of Alec and his team is to trade as accretively as possible. But on the other hand, not to be fooled by that initial cap rate and to be thinking hard about the long-term return on the asset.

All right, thank Mark. Thank you.

Thank you, Rich.

Thank you. We'll now take our next question from Rich Hill with Morgan Stanley.

Hey good morning, guys, and congrats on a very solid quarter. We run a cash model. And so I wanted to speak a little bit about the same-store revenue guidance on a cash basis. I recognize that you didn't provide that. But I would think that the cash number would be higher than the GAAP number given the rent benefits that you're providing in 1H of 2021. Can you provide what it would be on a cash basis or at least walk us through if our reasoning is correct?

Yes, Rich. Let's talk through this a little bit. So let's talk just straight on a cash basis kind of what we're assuming in the 2020 revenue number. So in 2021, right, you had call it, $27 million, which we disclosed on Page 12 of cash concessions. We're assuming at the midpoint of our guidance that we have significantly less concessions in that, right. So this is all cash to cash, right. And so therefore, we're thinking that we're going to normalize something back to normal. It's not quite the 4Q annualized, but it's something in that general ballpark that we're assuming at the midpoint. So what's happening, I think, is the inverse of what you just talked about. So in 2021, the GAAP number was negatively impacted by concessions. In 2022, it will benefit from concessions, right. So the cash number on a year-over-year growth rate basis should be a little bit lower than the midpoint that we had in our guidance range. And based on the numbers that I just outlined to you, it should be, call it, 60 basis points lower at the midpoint than the 9% that we just gave.

And Rich, just to add a little bit, it's Mark. The general rule you should think about here is that when you're doing concessions, and we were in a concessionary environment for a while, at the beginning, when you're issuing large amounts of concessions, your net effective number for revenue will be higher than it would be on a cash basis. We're now at the tail end of that where these concessions are going away, and that means that the opposite is now generally true and that you're doing a little bit better on the other direction. So your GAAP number is generally not doing the same. So that's just so you understand the trade. So when we disclose on Page 12, as Bob said, that for the full year, the difference is 4.6 GAAP versus negative 3.2 cash. You're effectively going to have that thing switch around a little bit. You're not going to have concessions improving your number like you did. You're going to have concessions hurting your numbers slightly. And that's what it does. So I think our cash number is 80 basis points lower.

It's about 70 basis points lower than the nine at the midpoint. So you've got more like an 8.3 on a cash basis year-over-year than the nine.

Got it. That's crystal clear, guys. And I'm really asking the question because it's obviously not uniformity across your peers about how that's reported, which I think is important to understand. I want to come back to the new leases and renewal leases. I appreciate the transparency and the disclosure about why you might not be capturing the whole 20% growth. But I think what I heard from you is next couple of quarters – next couple of months, you can expect to be a sort of a steady state as to what you showed in January. It will begin to decelerate in the second half of the year. But as we start to look forward to 2023, and I'm not looking forward – not looking for you to guide here. But what I thought you were telling us was the near-term is never going to be as high as a 20% blended. It's going to be lower, but that probably means you extend some of it out into 2023. And therefore, the blended spread in 2023 can probably be higher than what some people were expecting because it's just pushed out. Is that the right way to think about that?

Yes, absolutely. It defers it and pushes it into the next year.

So just to be clear, you will get all of that change. It's just a matter of when. And that depends on, as Michael said, the lease maturity schedule, a little bit of regulatory pressure, those sorts of things. But you'll get the whole thing unless the market changes. It's just whether it's all this year or a little bit falls into 2023.

Got it. And so said another way, if you're going to put up, let's just say, slightly less than 12.5% blended, we should think about rolling the difference between that 12.5% and that 20% into 2023?

Yes. I mean, I think a lot is going to depend on what intra-period growth looks like and the timing of that growth, whether it's early in the year or later. But yes, I mean, I think that's a fair way to model.

Okay, thank you guys. I appreciate it.

Thank you. We'll now take our next question from Nick Yulico with Scotiabank.

Thanks. Good morning, everyone. In terms of San Francisco Bay Area, I was hoping you could maybe talk a little bit more about – you said that good demand but not pricing power, and maybe you could talk about how that's doing in the different submarkets you're in, in the Bay Area?

Yes. Hey Nick, this is Michael. So clearly, there's a divergence, right. With the city of San Francisco, it is the area that has the most pronounced spread to the pre-pandemic pricing. You actually have pockets as you work your way in through the East Bay that's right on top of it. The peninsula is really approaching kind of that pre-pandemic. And the South Bay, despite the 4,000 units that just came to the market, is also just like that peninsula area, it's right on top of that pre-pandemic pricing. So I think what we're seeing is just when you roll it up at the market level, and we're still that 6% off of the pre-pandemic pricing, it's mostly weighted down from the city of San Francisco. And you have signs of that demand returning in there. You just don't have quite enough of it to get to that pricing power that you need to fully recapture everything. But the signs are there, and the question is just how fast in the year you can get to that price because the earlier we get it, the more it's going to yield the revenue growth this year versus deferring into 2023.

Okay. Thanks Michael. That's helpful. Going to the bad debt that number that's been just under 2% that on Page 2 of the stuff that is an additive benefit to your same-store revenue growth and it's been the same number over the last two quarters. How should we think about that benefit continuing to play out in 2022 from a timing standpoint, from a quarterly standpoint, are you still getting that for a couple of quarters?

Yes. So hey, Nick, it's Bob. Let me talk about the kind of two competing factors that go into that number as we think about how we modeled it in 2022. So one of the competing factors is the rental assistance, right. So rental assistance, which I think we talked about a little bit earlier on the call, we'll reduce that number, and we do expect that to trail into 2022 because the programs are not completely done. And we would expect that to be front half, right. And so that will benefit you on the front half basis. The opposite competing factor is just the actual resident behavior in terms of who's paying, who's not paying and how that kind of progresses. We do expect a benefit for that to occur, but that's probably more back half loaded. So what I think you're going to end up having, depending on how this all plays out is something that's pretty constant, maybe a little sub-2% level that will be kind of throughout the years as you go through the quarter. But those are your two factors that are driving kind of the bad debt. We do think on an absolute basis the bad debt will be lower with both those factors in 2022 relative to 2021.

And maybe we'll give a little bit more precision and Bob will help me. It's Mark here because I'm just playing CFO now. I'm not actually doing that job anymore. But our – in the old days before the pandemic, our bad debt write-offs are generally 40 to 50 basis points of revenues. They obviously went up considerably during the pandemic. And now you're getting these pretty variable numbers because of these – the great job Michael and the team have been doing with our residents of getting some of this government rental relief money. So the question on the run rate is probably a number that's in the 1.5% range for the year because it's still – there still are eviction restrictions and where they aren't, there's just slow processes. And there's just still some stuff the system needs to work through, Nick. So our sense is it's higher than a normal year but considerably lower than the 2.7% or so we were feeling through most of 2020. Is that a good enough number, Bob?

Yes. So even more specific. So we have, call it, $30-odd million of bad debt net of rental assistance in 2021. A normal year to Mark's point, would have been something more like 10%—excuse me, 1.0% or so. We won't get all the way back to the 1.0%, but we might get close to halfway there in 2022. So we'll add something that's, call it, $15 million to $20 million of bad debt is what we've included in our guidance.

Okay. Very helpful, guys. Just one quick follow-up on the renewals. You talked about, you felt pretty good about keeping pricing for renewals this year. I mean should we assume that something over 10% is baked into the guidance for renewal growth this year?

Well, no, I think what you need to remember is that the first part of this year is going to be strong. It's going to be these 12% numbers on the renewal. And then as you turn the corner in the back half of the year, I think you should expect some moderation. So I don't think it's materially below 10%, but I'm not sure we're going to stay at a 12% run throughout the whole year.

Okay, thanks everyone.

Thank you. We'll now take our next question from Chandni Luthra with Goldman Sachs.

Hi, congratulations on a strong quarter. So I'd like to talk about your relationship with Toll Brothers. Builders obviously have been experiencing widespread disruption. They have talked about labor challenges, materials and sort of extending their cycle times. Toll Brothers also in December kind of talked about its own cycle times getting extended. So what are you seeing from your standpoint? And then any change there from a timing perspective, when do you expect to deliver the first set of developments within that relationship?

Sure, and this is Alec. So what we're seeing—and we haven't broken ground on anything in our joint venture with Toll—we don't have any Toll-specific information on something that's under construction. But I can say that for the projects that we're working on with other partners, it's a question of timing, right. So things have pushed out by a matter of months but it's not whether or not the project gets done. And that's true of us and many of our competitors as well. So people are getting around the supply chain challenges, either by finding substitute products or warehousing the inventory that they need. So costing a little more, taking a little more time. But on the other hand, rents have been rising. So I'm not sure yields in most cases, have materially changed. The other thing that we would say is we are in a different business, apartment construction versus single-family home construction. That's more of an assembly line at a moment. You just need 1,000 windows, you need them right now. And for us, we have longer cycle times. It's a lot longer period of time to build an apartment building than a single-family home. So maybe you don't have the windows, but maybe you have all the drywall you can do or whatever the situation is. You can kind of manage things a little bit better than I think you probably can if you just can't deliver the house at all because you just don't have a key component. Well in apartments, you can go to a different stage in the process, at least sometimes and knock that out.

Understood. And then I'd like to follow up on your expense outlook. So obviously, if you go back and look at 2019, your expenses were a little over 3.5%. And then 2020 and 2021 were very well controlled and you gave some color on payroll growth in 2021 and sort of how that was a big tailwind. As we think about 2022 with the midpoint of 3%. Besides payroll, what are the other factors that are helping if you think about big categories such as taxes, utilities, repair, et cetera?

Yes. So let's start with the biggest category because it is—we expect it to continue to be a help as it was in 2021, which is real estate taxes. So real estate taxes, we do expect to grow below trend. And a lot of that has to do with timing as well. So some of the real estate jurisdictions are not on calendar years, so they're on different fiscal years. So we've already got like locked and assessed values that are lower or rates that are lower or just the general health of the jurisdiction is better. So we have a little bit of that continuation kind of flowing through. So we'd expect real estate taxes to be more around a 2% kind of growth rate than maybe in 2019 or historical and real estate taxes were more three to four. So that will drive some of the assistance. The payroll, I think you already hit upon. Utilities and R&M will be probably mixed, will probably be a little above average. I think that depends on a variety of factors on how it flows through on utilities with commodity prices and other areas where we've seen a little bit of relief as of late. A lot of the utility price we're able to pass back to the resident. So it's more of a geography than a kind of net-net impact overall. But it's the combo of good expense controls and initiatives associated with payroll, continuing to manage the R&M piece and then also benefiting from real estate taxes.

Got it, thank you.

Thank you. We'll take our next question from Brad Heffern with RBC.

Hey, good morning, everyone. On the development front, you have the $450 million in starts in 2021. Can you talk about what that number is expected to be in 2022 and maybe any trajectory over the next few years?

This is Alec. Yes, we're working on growing that pipeline. $450 million was a kind of jump-starting our program, which was helpful to that Toll had these three projects ready to go. But we're hoping to grow that to $1 billion or $1.2 billion over time. This year it will probably be somewhere between the $450 million and $1 billion.

Okay. Got it. And then on the transaction front, how do you think broadly the market is likely to respond to these higher rates? Are we going to see eventually cap rates move up with some sort of lag? Or do you think that just the underlying growth expectations have increased enough that things value sort of end up in the same place?

Yes. I mean, we're in that latter camp, Brad, it's Mark, about value staying, give or take where they are. I think interest rates going up are pretty manageable for value. So you think about the customary spread, and we talked about this on the last call of between the 10-year treasury and prevailing apartment cap rates of being 200 basis points give or take, and you imagine the Fed moving short rates and long rates responding and you wonder if the cap rates should go up. And I guess—given how durable multifamily cash flow has proven to be even during what was, I think, the biggest crisis in the industry's history in the last few years. I mean, we were hit pretty hard and we're right back in two years and on a good growth trajectory and the great prospects going forward. I feel like that bit of a risk premium is going to decline a bit. I also think there's a wall of capital that I know you're well familiar with that wants into real estate and specifically into apartments. I heard that number quoted as all sorts of different numbers, but it seems to be at least $100 billion or more. So I think that creates a floor as well. So our sense is that as long as interest rates going up doesn't crush growth and take the whole economy into a serious recession. Values will remain pretty good. And I also think you're going to get both real and nominal cash flow growth. So I think your NOI that you're applying your cap rate to, is going to improve as well over the next few years.

Great, appreciate the color. Thanks.

Thank you.

Thank you. We'll take our next question from Alexander Goldfarb with Piper Sandler.

Hey, good morning out there. Just going back to the opening comments on the rent increases, and you guys were clear that a lot of this year is going to be driven by the burn off of the free rent from last year. Just based on the rents that you're sending out on a face-to-face sort of apples-to-apples comparison, how much are the new rents going up? So basically, if someone had two months free last year, is it just reflecting that now they're not getting that two months free to whatever they were paying in face last year is what they're paying now. Or are you able to raise that face rate, call it, 5%, 10%, 2%? I'm just trying to get some perspective on the actual rent increase.

Hey Alex, this is Michael. So maybe I'll start with this for a little bit. So there's a couple of ways to look at that. First, you can go into the fourth quarter kind of statistics around like the new lease renewal and the blended and just look at the difference between like a net effective and a gross—and I'll tell you, you can almost say it's about a 300 basis point impact where outside of concessions that net effective is being kind of lifted up by about a 300 basis point impact from the use of concessions in that prior period. But a better way to kind of think about this is if you look at the loss to lease that we have today in January, and I'd say we are approaching right at around 11%. That's on a net effective basis. And when you look at that on a gross basis, so without any regard to any concession activity either last year or this year, it's about a 75 basis point impact. So you have about a 10.25% loss to lease right now on just rate. And that's the opportunity that allows you to work your way through 2022 and capture that rate, and some of that will fold into 2023.

So then if the bulk of the mark-to-market is really rate, not necessarily concessions, you're saying your inability to capture that is really just purely from markets where you're restricted on your ability to push rents?

And timing, right, not all leases expire, Alex, on January 1. That's the other. So you have to—it's a little bit of both. I mean certainly, there's some regulatory restrictions, particularly in Southern California, but there's also just timing. We don't—our leases don't all reset on January 1. So what we do is that we get that money the next year. So that is going to contribute to 2023. And just to talk about the concession. I mean we did take all that pain through the system. Our shareholders felt that. So the fact that there is some concession makeup— I mean that is real cash flow we didn't get that we're now getting back. So it isn't— I don't think you're implying this, but it isn't an accounting charge. It is a true cash flow reduction we had that we're now getting back.

Yes. Look, no landlord wants to not get paid for rent. Totally agree with you, Mark. The second question is on the assets that you're selling. Obviously, great cap rates on the sale. But if you think about your basis on those assets, what's the current yield that you're giving up? So great that you're selling whatever 3.7, awesome. But if you think about the cash yield that you're giving up, is that like a 6? Is that 5? Is that a 7? Because some of these things you've owned a long time with your basis being a lot lower, correct?

Well, I'm going to—it's Mark. Just to ask a question. The 3.7 we quote you, the disposition yield is what we think forward cash flow is based on the price we sold it at. So it is what EQR would have gotten if we had kept these assets. So if you're talking about what our historic book value is, just to give you a sense of perspective because we just had this conversation with our Chief Accounting Officer, I mean, this company is very good at investing in apartments, so we have half the book basis or so of, I guess, compared to the actual sale price and most of that, the vast majority of that is in depreciation. It's actual gain on sale. So I don't know if that's helpful perspective to you, but the book value, it's fair to say is about half. But I'm not sure why the book value is terribly relevant. And the 3.7 is a good reflection of the cash flow EQR gave up. Is that helpful?

Yes, yes. That's—because obviously, you had an investment before, Mark, that was yielding you. It sounds like double the 3.7% that you're selling it. So I'm just trying to get that perspective as you're reinvesting the capital.

Yes. I don't know about double because, again, you're failing to mark the asset to market. If you—I mean, we don't operate on a historic basis here. You don't look at an asset and say, it's only worth its net book value. It can be worth more or less. And in our case, it's often worth more. So I'm a little confused by the comparison of net book value using that as your denominator with cash flow as your numerator. I think cash flow forward is your numerator and your denominator is what you sold the asset for you think the asset is worth at the moment, right.

Yes, yes. You answered my question, so we're all set. Anyway, listen, thank you.

Thank you.

Operator, do we have another question?

We'll take our next question from Anthony Powell with Barclays.

Hey, good morning. Question about renewals. You said that your renewal rates were among the highest they've ever been. I'm just curious, what do you think causes that to normalize? And does it matter to you? Do you prefer more renewals or less in the current environment?

So this is Michael. I mean, clearly, we want retention, right. We deliver an outstanding customer service to our residents. We have a market price that we're using as a quote and we want our residents to stay with us. So as I think about that retention right now, you do have a couple of areas that the retention is super high, and that is probably being influenced by some of the regulations that's keeping some of those increases, call it, well below what the current market rate is, again. And that, to us, is just a deferral of the revenue into next year. But I think what you should expect to see is as the year goes on, I'm guessing we could see a little bit of that moderation on that retention or on that percent of residents renewing. But I don't think it's going to be material. I mean our residents are telling us, and you could see by the increases that we've been putting out there and they're signing with us that it's not an affordability issue. You may see a little bit of a tick up based on increase and then moving around. But I think we expect to see strong retention through the year.

Got it, thanks. And one more for me on the cap rates on acquisition and disposition. I asked a few times on the call already. But do you expect to see some expansion in some of your sales activity and maybe some contraction than what you're buying? Or is it given what you talked about in terms of the capital coming into the space, do you expect to see continued low cap rates for even some of those for you target noncore sales that you're selling now?

We're seeing flow cap rates kind of across the board. We're also a very tactical seller, right. So if a market has not got a lot of bids in a particular—last year, we didn't feel like New York—there was a lot of interest in New York. So we didn't sell. Now we're feeling differently. We have a property under contract, and we'll get a low cap rate on that. And investor interest is broad across the markets, and we're going to continue to match sources and uses here with the dispositions paying for the acquisitions, as Mark said, at roughly the same cap rates.

Right, thank you.

Thank you. We'll take our next question from Rob Stevenson with Janney.

Good morning, guys. Bob, what did you guys spend on new and recurring technology in 2021 that allowed you to have the AI and the self-guided tours and the negative on-site payroll growth? And what are you expecting to spend in 2022?

Yes. So in fairness, and I'll let Michael chime in here. Most of the investments that yielded the results in 2021 related to the AI and other things were actually spent in prior years. There's a little bit of chicken and egg thing. So typically, what you see is investment in the overhead or technology like the AI, which by the way, was relatively inexpensive, I think, sub $1 million. You see that investment happen first as the enabler, and then you begin to see the reduction in the on-site kind of payroll or the change in the staffing. And so then when you move forward to 2022, we're in that position where we're once again in a phase of investment in the technology, and that's a lot of what our above-trend overhead growth that I alluded to in my comments is driven on. It's a lot of tech, it's some centralization of staffing, et cetera. So there's, call it, maybe $4 million or $5 million at least embedded in kind of the property management growth rate. You're seeing some of that come out again in the 2022 numbers. But a lot of it is the investment into 2023 and 2024, and you've seen in some of our presentation decks, what we think the growth potential of that. When we make these investments that are going between geographies, just so you know, it's a very ROI-focused. Geographies don't matter, bottom line and cash flow do. And so what we look to do is to invest in technology or invest in centralization that gets a positive ROI overall regardless of geography.

Okay. Mark, anything incremental from a legislative, regulatory, ballot initiative perspective that you're worried about at this point that could have a significant impact, if enacted?

Well, we're probably feeling a little better in a couple of places. I certainly think in New York, the new mayor seems to have been elected by a populist that wants practical problem solving government in New York and is thinking about the crime issue in a good, thoughtful way. So that's positive. The governor has a lot of experience with real estate and understands how market factors work in real estate. So that—so probably feel smidge better in New York. I would say one thing in California, there will be an expiration shortly of a prohibition on local eviction moratoriums. And we do have some concern about that. I mean that is something we do think about. We think the time has passed for those sorts of emergency measures justified by COVID and that the system needs to adjust itself. And if there's going to be a need to keep people in homes of that sort, then the government should fund those kind of programs with enhanced vouchers or whatnot. But that's probably the thing that's foremost in our minds. And like I said, I think I feel a little better about New York, maybe not a lot, but a little in terms of the policymaking and then we'll continue to keep our eye on good cause eviction as well. And in some of our other markets, again, there seems to be more focus on quality of life and concerns of that sort, whether it's in Seattle or the city of San Francisco, and we welcome that as well.

Okay. And then one last one for me, Bob. What was the $17 million impairment charge in the quarter related to?

Yes. So that related to a specific parcel of land and you can notice looking at our balance sheet, we don't have much land at all. But it related to a specific parcel of land in downtown Los Angeles that we no longer anticipate pursuing from a development standpoint. We obviously do a very thorough review of our land bank and all our assets from an impairment standpoint periodically and that change in intent is largely what drove that charge.

Okay, thanks guys.

Thank you. We'll now take our next question from Haendel St. Juste with Mizuho.

Hey, there. Thank you. I just wanted to go back. I don't know if you—did you outline a timeline for getting your portfolio to that kind of pro forma balance that you mentioned early in the call that one-third California, one-third the balance you outlined earlier. And then also, it looks like there's a bit more wood to chop in California. So maybe as part of that, can you talk about the level of demand and buyer profile that you're seeing in California? We keep hearing a lot of chatter that inbound is far less for California. I'm just curious on what you're seeing there? Thanks.

Haendel, it's Mark. I'm going to start with the timing, and I'm going to leave Alec to talk about what's going on in the California sales side. So it will take a few more years. I mean, $2 billion is our goal on buys and sells. There was a lot of product sold towards the end of 2021. And so 2022 is not yet that busy, that's pretty common for the first quarter to be a little quieter. We'd love to do more than $2 billion, but we'll do only as much as makes sense on both the buy and the sell side. So I think you should expect this to take several more years to fully effectuate. But I'd say, in the meantime, the holders are going to get the benefit of the strong recovery in our established markets. And so again, we're going to continue to own a lot in New York, and New York is going to be a terrific market in 2022. And then you'll see our exposure to that market drop over time. And I think, hopefully, that will be well timed with improvements in performance in some of the Sunbelt markets that we're adding exposure. And so I think it is going to be a couple more years for sure until we get to that balance I've spoken of.

And as to investor interest in California, we see both newer transactions that we're typically looking at buying, and it's been a very full bidding tent for that. And also the older stuff that we're selling into such a slightly different buyer in many cases, more value-add focused. Also a lot of interest. The exception to that is really downtown San Francisco. There has not been a significant trade. And right now, I think the market has to continue to recover both from a rent level, which it's starting to do but also from investor appetite. It's somewhat analogous to New York, where 12 months ago, we felt the same way we needed to wait on that before we sold any property there. And San Francisco is a little lagging behind that, but that is the market where you just don't see much sales transaction. Otherwise, it's very robust.

Got it. Got it. Appreciate that. Mark, assuming you're open to fast-tracking that, should a portfolio present itself and you have identified use of proceeds? Or is this something you just want to manage a bit more rationally here over the next couple of years?

I apologize. I didn't— that broke up a little. Would you repeat that question?

I was asking you. Would you—theoretically, are you open to fast tracking that, the asset recycling out of California should there be maybe a portfolio...

Absolutely. If there was an opportunity of that sort, we'd be all over it. But a lot of the portfolios we've seen that have traded or been offered for trade have all sorts of frailties. They're either a lot older product or they're in the wrong place or both. And they may have a few of the assets we want, but we're looking to try and make trades that move that goal along. Listen, we're open to buying assets, frankly, anywhere that makes sense if we get a great price. And this is not a market where you're getting a great price. So otherwise, you need to have it make sense relative to the strategy. So we'd love a portfolio acquisition. Alec and his team are super focused on that. We've not seen a lot of those opportunities that were in our wheelhouse come by.

Great. One more question. A bit of a question, but just curious on your thoughts. I was intrigued by your reference to the Gen Z cohort earlier. Looking at the numbers, it's a large group but noticeably short of the size of the millennial cohort that preceded it. So I guess just thinking ahead, I'm wondering at some point how this kind of plays itself out maybe in less demand or potentially less rate growth at some point. But also I'm curious kind of what have you learned about that cohort, maybe how they differ perhaps from millennials, and is this impacting anything on kind of like collection or services. And then as a follow-up, would you be enticed perhaps to do a bit more in the single-family rentership side as they appear to be more set up to be a beneficiary as millennials age? Thanks.

Well, there's a lot in there, and I don't know if some of the rest of the team might contribute to the answer. I have two Gen Zers sitting in my house that I very much want to get out there launched. And we see that cohort as very large. And I think with sensible immigration policies, I'm not sure it will end up being much smaller or smaller at all than the millennial generation was. So besides the raw numbers, there's also what percent of those people are captured in the apartment rentership world versus home ownership or single-family rentership. And I think we're going to capture and continue to capture a fair amount of those millennials. It has been well documented that a lot of those folks have pretty good earnings power but not necessarily a lot of savings to put down for purchasing homes. And so a lot of those folks are going to stay longer with us, and they value that flexibility from rentership. So our sense, and again, we've seen research on this is that even though the ownership percentages have been going up and millennials are certainly part of that, I think we're going to continue to have a pretty good share of that millennial population even as it ages. Our average renter is 33 years old in our portfolio. So it's a little older than some of our competitors. So I think we are still approaching the high watermark for the millennial generation in terms of the largest single year of population. So that all feels good. I think the runway for demographics and apartments is really good. In terms of going into the single-family business, we're a residential company. We think about all those things all the time. But what we have in front of us is this really good opportunity to build a 12-or-so market portfolio in the best places for affluent renters to live in the U.S. We're really good at managing apartments, and we're good at that. We can be good at other things, too. But I think what we have in front of us is an opportunity to really trade out of some of the older product and maybe regulatory challenged product and move into apartments. That seems like that's right in front of us. I wonder if that isn't the opportunity for us right now as opposed to trying some new things, especially since those new things aren't cheap. So I think single-family is certainly an analogous property type and plenty of our ex-employees have worked there in pretty senior roles. So we know a fair bit about it. And we think about it a fair bit. But it isn't something that, from my perspective, is the immediate opportunity.

Great. Well, listen, thank you for the time. Appreciate the thoughts.

Thanks Haendel.

Thank you. We'll now take our next question from Nick Joseph with Citi.

Hey, it's Michael Bilerman. Mark, if we can just stay on this idea of the refined portfolio like it's about, let's call it, $6 billion or $7 billion of assets out of New York and California to rotate into that diagonal line starting up in Seattle. And I recognize $2 billion a year will take you through the three years. You've been selling a lot of assets outright. Have you given any thought or is there an opportunity to maybe do a fund or a larger joint venture because I would assume that there's a fair amount of capital out there that would like Equity Residential as an operator and just given your presence in these markets, owning 25% of an asset continuing to manage it is better? Or is your mindset, no, I just want to be out completely and not have a stub interest in the market?

We're open to joint ventures. There are some places where we're probably more open to them. For example, the city of San Francisco with very high transfer taxes, maybe a place we're selling part is better. Selling twice as much in halves is better than selling one whole. So I guess, Michael, we are open to it. That's a different pocket of money. We have conversations. We know all those people. If an asset just needs to be sold, we want to sell it. We don't want to put a partner into an asset that we think will be challenged, but there are certainly assets we're just overexposed in the submarket and we just like to have a little less exposure. So we're open to that, and we've had those kind of conversations. But honestly, the market to sell 100% has been so darn good. We've just gone ahead and done that. But we're open to that. And the most important part of that is we found more to buy, then we'd like to hit the switch on everything, JVs and larger portfolio dispositions and all of that. So the big limiter on doing one of those trades is all of a sudden, Alec, would get $600 million of cash that he need to reinvest in 90 days in a bunch of new great apartments. And that, Michael, probably concerns me most is how we would go about finding that new product, more than anything else.

I mean how do you think about, I guess, rather than selling assets, just growing the base? I know it takes longer to do. But there's an element that maybe just— you talked about your rents being back at peak levels, your stock is too, right? So your equity all of a sudden becomes attractive potentially. I don't know how you think about it to issue to grow rather than selling cash flow assets.

Yes. Well, I mean, we do intend to grow. The development engine, we hope, will create some growth. We're open to the suggestion you made. It's again finding things to buy. If there was a lot to buy out there, Michael, and we might be very interested in using debt. We have a lot of debt capacity, maybe a little bit of equity and start buying, we'd love to get bigger. That's—we think this is a great time to be in the apartment business and would love to have both asset and cash flow growth. We'll get a lot of cash flow growth from just the existing business. So I'd tell you on both of your very good questions. The limiter is more our opportunity set not us wanting to pull those levers. We'll pull the JV lever, we'll pull the equity lever, if there was a lot of great things to buy. With it being such a tough market to acquire in, the trading activity has been probably a better way for us to go.

Right. And just as I think back to EQR history, as they've gone through different times of market repositioning going back to the 2000s and then obviously, the Starwood deal pre-pandemic, that put the company into six core markets. I guess are you thinking at all about a larger transaction, and I know it has to be available for you. But at least relative to some other times, you have culminated the market repositioning with a large transaction versus this sort of just year-by-year methodology?

And we'll react to the opportunity set that presents itself. I mean I appreciate the comment because you're right, we are transactionalists. We're good at doing large deals. We know how to integrate assets 50 at a time or more into the portfolio. But again, I don't see that opportunity set out there. So I guess it's hard to react in the abstract to that. But I'd rather be done with this process. That part, I agree with you. EQR would rather be done with the realignment process, but we're not in such a hurry that we'll do it by buying lower quality assets.

Okay, great. See you in Florida.

See you there.

Thank you. We'll take our next question from Joshua Dennerlein with Bank of America.

Hey, guys. I just wanted to ask about a follow-up to an earlier comment where you spoke about same-store guidance ranges and you mentioned trend intra-period rate growth. Can you just remind me what the—kind of how to think about trend intra-period rate growth is and the seasonality?

Yes. So if you think about kind of—and I'll use maybe 2018, 2019 as typical, right. So typical for this business kind of trend would have been something in the high 2s, low 3s in terms of rent growth and it tends to start a little bit in the first quarter. You build in the second quarter at the beginning of the lease season. You peak in the third quarter and then you typically have a little bit of a sequential rent decline as you get to the fourth quarter. So that would be a typical kind of pricing trend as you looked in other years, right. Now from a revenue standpoint, you're obviously not going to capture all of that because we talked about you don't write all your leases on 1:1. You have— you maybe capture half of it based on the outlook, what I outlined in terms of actual revenue performance in a given year. So that's kind of what I think about in terms of trend. What we've assumed in our 2022 guidance is that we follow that kind of same shape of the curve but that is a little bit above trend, right, that we continue to see that strength and it is a little bit higher than trend. If that is much above trend, right, is something that is approaching more like the mid-single digits or even above, that's going to push your guidance range—your actual results to the high end of the guidance range. If you're below that, call it, three that I was saying trend and you get kind of no growth, that will push you down towards the bottom end of the range.

Okay. That's very helpful. I appreciate that. And then that 25 basis points drag from capital recycling, is that just a function of timing or maybe a difference in cap rates across what you're buying and selling?

Yes, it's Mark. It's kind of just in our model. It can be either one. But like this year, we didn't have any. And our goal with Alec is to not have any again or for it to be accretive. But it can be from either. It can be from selling early in the year and thus having more disposition NOI gone or it could be from buying early in the year and having more accretion just by virtue of that. So either or, I guess, I'd tell you. You just take 25 basis points, multiply it by $2 billion that's the negative drag somewhere in EQR's P&L model on this activity.

Okay. Awesome. It sounds like a potential source of upside, last year you had none. So if I'm reading it correctly. Thanks guys.

Thank you.

It appears there are no further questions at this time. I'd like to turn the call back to Mr. Mark Parrell for any additional or closing remarks.

Well, thank you all for your time today. We look forward to seeing many of you in person at the conferences that are coming up and in your offices over the next few months. Thank you very much. Stay well.

This concludes today's call. Thank you for your participation. You may now disconnect.