Good day and welcome to the Equity Residential 2Q 2025 Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Marnie McKenna.

Please go ahead.

Good morning, and thanks for joining us to discuss Equity Residential's second quarter 2025 results. Our featured speakers today are Mark Perel, our President and CEO, Michael Manelis, our Chief Operating Officer, and Bob Garichana, our Chief Financial Officer, Alec Brackenridge, our Chief Investment Officer, is here with us as well for the Q&A. Our earnings release is posted in the Investor section of EquityApartments.com. Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events. Now I will turn the call over to Mark Perel.

Thank you, Marty. Good morning, and thanks for joining us today. I will lead us off with some top-of-the-house commentary. Then Michael Manelis, our Chief Operating Officer, will provide color on our second quarter performance, as well as what he is seeing in the markets today, and an update on some of the initiatives we have going on. He will then turn the call over to Bob Gershanna in his last call as our CFO before he takes over as our Chief Investment Officer. And Bob will provide some color in our guidance changes, and then we'll go ahead and take your questions. Alec Brackenridge, our soon-to-retire CIO, is here with us for the Q&A. Our second quarter results and guidance continue to reflect the sustained demand and excellent resident retention that we are seeing across our markets. We see this demand as being supported by nearly full employment in the country as a whole, with the overall unemployment rate being only 4.2%, though the pace of job growth is certainly slowing. The unemployment rate for our key demographic, the college-educated, remains even lower at 2.7%. We're also seeing continued high retention rates as more residents choose to renew with us. Fewer and fewer residents are moving out to buy homes, and as we and other operators often prioritize occupancy and renewal rate management over new lease growth in a world that is more uncertain than usual for residents and landlords. Also, we continue to see the forward setup for our business as outstanding and see above-trend revenue growth in future years as likely given the large apartment supply decline, the expensive and unavailable single-family owned housing market, and societal trends favoring rentership. As we talked about at our Investor Day earlier this year, our shareholders benefit from our unique and diversified portfolio. We have a differentiated exposure from our competitors That includes a collection of assets across the urban centers of many coastal markets that gives us a distinct opportunity to outperform as improving conditions, particularly continuing declines in new supply and improvements in quality of life in these urban centers, drive faster cash flow growth. To illustrate that further, we are already seeing strong revenue results in places like New York City and downtown San Francisco, where supply has already abated, and with more supply declines on the way, we are optimistic our results can continue to be above trend in these areas. Across our markets, we look for a balance of both urban and suburban assets that capture the changing needs of our primary renter demographic. Putting this portfolio on top of the most efficient overall operating platform in the space, when you take into account overhead, capital expenditures, and operating expenses, and you have a vehicle that should outperform in the near term and over the long term because of its focus on higher earning renters across a broad array of markets. Finally, while good job growth is important to all apartment markets, it is especially important to drive absorption in oversupplied markets. So we expect our portfolio with its tilt towards lower supplied markets and sub-markets and relatively modest amount of development properties in lease-up to exhibit more resilience if job growth continues to wane. On the transactions front, in the quarter, we continue to build out our presence in Atlanta with the acquisition of an eight-property portfolio in suburban sub-markets. This is a market we have been favoring in our recent acquisition activity as we expect supply here to decline more quickly than in other Sunbelt markets. We now have 22 properties spread throughout targeted submarkets within the Atlanta metro area. These eight new store properties plus seven assets that were acquired last year complement and round out our current six-property same-store portfolio that is focused more in midtown and in closer-in submarkets. We have also gained powerful economies of scale in Atlanta, where we can efficiently share personnel across a broad portfolio and take advantage of our new scale in contracting for local services like landscaping, as we do in other markets where we have a large number of properties. While we continue to look for opportunities to add to our portfolios in our expansion markets and certain suburban submarkets of our established markets, the transaction market is not as active as we had hoped it would be at the beginning of the year. As a result, pricing has become very competitive with cap rates for desirable assets we wish to acquire, often in the high 4% range, significantly lower than the cost of debt, even for us with our highly rated balance sheet. As you saw in our release, we have lowered our acquisitions expectations for the full year to $1 billion from $1.5 billion and expect to match sales and acquisitions this year. Nonetheless, we certainly have the ability to accelerate our acquisitions should attractively priced opportunities arrive. Before I turn it over to Michael, I want to thank Alec Brackenridge for his leadership, for his friendship, and for all his hard work over the years creating value for our shareholders. Alec will work with us assisting in the transition as we finish out the year. We're also excited for Bob and know he will thrive in his new chief investment officer role. And finally, I want to welcome Brett McLeod to Equity Residential. Brett will take over as our CFO in a few days, and we are very excited to add his deep financial experience and new perspectives to our team. And with that, I'll turn the call over to Michael Manelis.

Thanks, Mark, and thanks to all of you for joining us today. Our second quarter results exceeded our expectations from the beginning of the year and we're about in line with our expectations going into the leasing season. The financial health of our residents remains strong. The average household income of our residents who moved in with us in the second quarter is up eight and a half percent from the same quarter last year and rent as a percent of income remains low at 20%. In addition, as Mark mentioned we are not losing residents to home purchase and in fact that number sat at seven point two percent in the quarter which is among the lowest levels we have seen our blended rate growth of three percent was about where we thought it would be driven by strong renewal rate of five point two percent with sixty percent of the residents renewing in the quarter our intense focus on customer satisfaction and stronger than expected results from our centralized renewal process have driven this performance. Our physical occupancy was very good at 96.6%. New lease rate was slightly negative in the quarter, which reflects that while there is good demand, it is a bit price sensitive and concession use continues in a number of our markets, particularly those with heavy supply. As we look to the markets, New York continues to benefit from high occupancy, actually the highest in our portfolio, and very little competitive of new supply, leading to some of the best blended rate growth in our portfolio. With demand being driven by a steady job market, we continue to expect this market, where we have a predominantly urban portfolio, to be one of our best performing markets in 2025. Boston has had steady demand, leading to good occupancy and a strong renewal rate. The market is feeling some of the pressure and uncertainty from actual and potential cuts to the education and research sector. As a result, the job market seems a little softer here, and foreign inbound demand was slightly below historical norms. Our urban assets continue to outperform our suburban ones, as the new supply is more focused in the suburbs. Our bias here will continue to be occupancy-focused, and the second quarter was already up 90 basis points sequentially. Washington, D.C., has been an excellent performer throughout the first half of the year, with high occupancy and good retention and really strong rent growth. Not surprisingly, we have recently seen a slowing in the market, likely due to the uncertainty around jobs given the cuts by the administration. While the government is not the only employer in the market, it clearly has an influence on the overall feel and confidence levels. Currently, our pressure is being felt in the district and areas of northern Virginia. Velocity slowed a bit in July, but demand recovered quickly as we backed off on rate, which is allowing us to maintain strong occupancy. Despite the recent softening, the Washington, D.C. market remains on track to be one of our strongest revenue growth markets in 2025, with a very significant drop-off in supply expected in 26. Moving out west, the real standout market for this year is San Francisco. We talked about the potential for recovery in this market at our investor day, and are very pleased that this recovery is coming to fruition at a pace even beyond what we expected. Our blended rate growth at 5.8% here is the best in our portfolio, driven by strong new lease and renewal increases with sequential gains and occupancy. This is a great example of where we saw a recovery in full force and drove very robust seasonal price acceleration, including the pullback on concessions. Tech jobs are steady with a lot of continued AI focus in the market. During the second quarter, we observed very favorable migration patterns with 8% more move-ins coming to us from outside the MSA and 5% more move-ins coming to us from out of state. We are optimistic that these migration patterns continue, especially in the downtown sub-market, as the city is really starting to feel the positive impact from the focus on quality of life issues. Competitive supply in the market at less than 1% of inventory is very manageable, and we believe this will be our best-performing market this year. In Seattle, the improvements continue with the market working past the quality of life issues that have been a challenge. Seattle is seeing a slow and steady job growth from the tech firms, leading to modest growth in office using jobs, which is also being positively impacted by the return to office policies of big employers like Amazon and Starbucks. As expected, supply pressure was felt in the city of Seattle and Redmond submarkets, which impacted some of our new lease pricing power. But the good news is that most of the concentrated deliveries are behind us, and this is likely to be a temporary condition. Concessions are still in wide use as the market seems to have become accustomed to them over the past few years overall solid employment and an easier comp for us in the second half of the year as seattle continuing to be one of the top performing markets for us this year with a great setup in 2026. los angeles continues to face challenges and underperform our pretty modest beginning of the year expectations lackluster job growth driven by a pretty weak entertainment sector along with the quality of life issues, are keeping pressure on demand. Our West LA and suburban portfolios are doing better than our assets located in Korea and Mid-Wilshire submarkets. On the hopeful side, a very large tax incentive should spur local employment by driving the return of filming and production to the market. We have good occupancy overall, but it appears that our rents peaked in early June. This is a good example of a market where our focus is on retention and capturing good renewal rates while maintaining occupancy as overall pricing power was softer than seasonal norms. Orange County and San Diego are performing in line with our expectations for the year. New supply and modest job growth are keeping pressure on rents after a number of years of strong performance. And finally, in our expansion markets, Denver continues to feel the impact from modest job growth and high levels of new supply, particularly in the downtown market. Concession use is heavy in the overall market. We have a good pace on our leasing volume, but a fair bit of price sensitivity and deal shopping is impacting new lease growth and making us prioritize retention and renewal rates. Our Atlanta portfolio is performing in line with our expectations for the year. As a reminder, our same store portfolio here is just seven assets and is primarily located in more urban locations like Midtown, unlike our newer suburban acquisitions. The urban areas are experiencing a lot of new supply and concession use, but it appears that this sub-market found a bottom as we have had a few months of stability with early signs of potential improving conditions. Our non-same store properties, which I mentioned are more suburban focused, will join the same store set next year and are performing at or slightly better than our underwritten expectations and clearly better than our urban Atlanta properties. We feel good about Dallas. Demand is strong due to better-than-average job growth in the market, but concessions are plentiful as the market absorbs supply, particularly in select submarkets. Similar to Atlanta, our newer acquisitions, which are in less supply-concentrated submarkets, will join the 2026 same-store set and tend to face less direct supply pressure and are performing better with fewer concessions and stronger occupancies. Switching to innovation and automation updates, the opportunity to apply artificial intelligence in our business is really exciting. Our AI leasing application pilots have reduced overall application completion time by over 50% while significantly improving fraud detection, resident underwriting, and user satisfaction. Given this success, we are accelerating the rollout, aiming for full deployment by end of year, which is about a quarter earlier than in the original timeframe. Additionally, our new delinquency management AI will be fully deployed by the end of this month, and so far we can see that consistent engagement with customers improves overall payment behaviors. All of these automation and conversational AI initiatives are set up to dramatically improve both our customer experience and operational efficiency. As we think about the third quarter, we expect blended rates to begin to moderate as usual, with strong retention and occupancy continuing against a backdrop of slightly lower achieved renewal and new lease rates, which combined will result in an expected blended rate growth range of 2.2 to 2.8 percent for the quarter. With our occupancy holding steady and resident turnover continuing to track at record low levels, we are well positioned for a solid back half of the year, especially as supply headwinds continues to subside. As I think about our setup for 2026, we expect to have normal embedded growth, continued strong renewal performance, and occupancy against a backdrop of much less competitive new supply pressure.

At this time, I will turn the call over to Bob to walk us through the financial results and guidance changes. thanks michael as michael mentioned i'll walk through our guidance changes before opening it up for q a starting with same store revenue the 15 basis point increase in the midpoint of our same store revenue guidance is driven primarily by better than anticipated retention and improved occupancy growth which michael already discussed as we discussed at the beginning of the year other income growth and bad debt improvement remain back half loaded and thus far are right on track with our original guidance expectations we continue to expect improvements in those areas of 70 basis points and 20 basis points respectively turning to same store expenses we've revised the midpoint of our expense guidance range down by 25 basis points this improvement is driven by better than anticipated real estate tax insurance and payroll growth offset in part by higher utilities expenses as we noted in the release utilities this year are suffering from both a difficult comparable period and higher commodity prices along with elevated water and sewer charges. Those elevated water and sewer charges came from higher usage in Southern California as we dealt with mitigating wildfire risk earlier in the year. Outside of those categories, most of the other categories remain on plan. As a reminder, before we move on from expenses, about 50 basis points of our total expense growth in 2025 is related to our bulk Wi-Fi rollout and is included in repairs and maintenance. This program is accreted to NOI growth given its other income contribution, but is an outside driver this year to expense growth. With these revenue and expense improvements, we are increasing our same-store NOI growth midpoint by 30 basis points, which is in the top half of the prior range. Before discussing FFO, I want to remind everyone of the expected cadence of same-store revenue growth for the remainder of 2025. We continue to expect improvement in quarter-over-quarter same-store revenue growth in the last two quarters of the year. This is driven by the compounding effect of positive blended rates and leasing activity from the first half of the year, strong continued physical occupancy, and back-half-loaded improvement from both bad debt and other income, like I just discussed. Finally, we're increasing the midpoint of our NFFO range by $0.05 to the top end of our prior range. Page two of the release provides a detailed reconciliation of that change, but let me provide a little more color here. Two cents of the improvement is coming from the same store adjustments I just described. One cent is coming from better performance in our lease-up portfolio, which is largely due to outsized performance in our suburban San Francisco lease-up and our suburban New York lease-up, while other communities are largely in line with expectations. Two cents of lower transaction activity noi is reflected as well from our changes in our transaction activity guidance from 1.5 billion in acquisitions down to 1 billion performance from communities acquired thus far is in line with our underwriting and our original guidance we also have three cents of lower interest expense due in part to that change in transaction volume as i described and also slightly better refinancing rates and finally we have one set of improvement from other items including overhead one final note before i turn it over to the operator in the second quarter we attractively refinanced our 2025 maturity with the change in transaction activity guidance we are not including any further debt issuance in our guidance given that we currently expect to match fund our 1 billion in acquisition activity with 1 billion in dispositions our next meaningful debt maturity is not until november of 2026 and with that i'll turn it over to the operator Thank you.

If you are dialed in via the telephone and would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to lie your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment. We'll go first to Steve Sakhwa with Evercore ISI.

Thanks. Good morning. I realize we're a little bit out from kind of the full 26 guidance, But as you just sort of think about the pluses and minuses, as you kind of look out over the next kind of 12 to 18 months, you know, I guess, is the supply picture coming down, I guess, able to offset maybe a slowing job market? And I guess what are the puts and takes as you think about growth into next year?

Hey, Steve, this is Michael. So, you know, I think I gave you a little bit of color just in the prepared remarks, like the setup that we see. You know, I think for us, you know, starting the year with a pretty normal kind of embedded growth, maintaining strong retention. And if you think about what we just saw with kind of some of the job reforecast and those numbers, you know, I think for us the most important thing for next year is really how much less competitive supply we have. And by competitive supply, I'm looking at the proximity of new supply within a one or three mile radius of our assets. I mean, we just have so much less new supply that's going to be needed to be absorbed in the markets. So I think at this point, any level of job growth that we see next year is just going to add pricing power to what we believe is a pretty solid setup for 2026.

Okay, thanks. And then, Mark, maybe just bigger picture, you sort of talked about, you know, kind of your enthusiasm for San Francisco and New York and not asking you to second guess your decision about moving into the expansion markets. But, you know, do you you know, do you rethink sort of the mix of the portfolio and, you know, how do you maybe think longer term about, you know, the contribution from expansion markets versus the established markets? And, you know, are you likely to lean more into the established markets, or do you still feel like you need to get to that EV20 or 75-25 next?

Yeah, thanks for that question, Steve. Appreciate that. So, you know, the goal here is, as we said at the Investor Day, to build that kind of all-weather portfolio around our higher-earning customer. You know, thinking about supply and demand risks and opportunities and, of course, regulation and resilience. And so nothing that's happened has changed our perspective. I mean, our view is that our portfolio is super well positioned for at least the next year and a half, given, as Michael said, the lack of supply and even the declines in supply. We're already in a low supply situation in San Francisco, and next year is even better, and New York feels great. So those markets are doing their job. Meantime, these expansion markets, which we chose, you know, Denver, Dallas, Atlanta, and Austin are suffering from supply. And again, as we said in Investor Day, we knew that would happen, but they are good job growth markets. And we think they will pick up. I will make a note, though, maybe with the exception of Atlanta, we don't think next year is necessarily the year that all these markets are going to turn around that we're in. We think the Sunbelt recovery is much more about absorption than about delivery dates. and that the lease up will take some time. So to kind of sum it up, Steve, we think having that balance between suburban, urban, and most of our markets, New York will always be a little more urban. Markets like Dallas always be more suburban, sticking near this higher end earning customer and having balance because there'll be a day when these demand markets are a good place for us to be. And we'll have some of that in our kind of recipe of portfolio or kind of what we're composed of. and then we'll continue to have this drive from these urban centers. So, you know, again, I feel really good about where we are. I mean, we could have bought a lot more in these sunbelt markets earlier and we'd be hurting right now. So I think taking our time, being thoughtful, getting close to that 20% goal, but that goal is not one we're afraid to vary from if there's opportunity elsewhere. So we'll keep moving along here, but we don't have a timeline we need to meet.

Thank you. Thank you.

We'll take our next question from Yana Gallin with Bank of America.

Thank you. Good morning. Michael, thank you so much for the very thorough market overview. Can we just go back to EQR's use of concessions this spring and summer leasing season relative to last year's and trying to understand if this kind of helps the setup for next spring on the renewal side?

Yeah. Hey, Yana. It's Michael. So I guess I'll just frame up the concession use right now, which is on a cash basis. We use more concessions in the second quarter than we originally expected. You know, overall, we averaged about seven days of concessions per move in, which is down from the first quarter, but still about a day more than what we would have expected. And, you know, the increase is driven, you know, by continued targeted liens into occupancy, along with some of the kind of more supply impacted sub markets, you know, just having greater concession use than we originally thought. So I think right now our view is that we're going to continue to see elevated concession use in the expansion markets, a few of the LA sub markets. Hopefully Seattle and San Francisco are going to continue to see this reduction in the pullback that we've seen. You know, so if you think about the setup going into, you know, spring and even peak leasing season next year, you know, again, if we start the year well positioned and we have, Like I just mentioned to Steve, any bit of job growth, we really should see some, you know, kind of good rent acceleration against the backdrop of having all these folks from this year getting those concessions should drive some of that kind of net effective increase.

Thank you. And then on kind of greater D.C. specifically, is there any kind of slight differentiation between the district and northern Virginia? Or right now they're pretty similar in terms of kind of what you're seeing in terms of demand?

Yeah, I think I would say for us, it's more systemic. You know, the district, clearly, we have, I think, 12 properties right now. We're feeling a little bit of that softness there. And when I look into the northern Virginia submarket, it's really kind of isolated pockets in the RBC corridor that you're feeling some of that pressure. You know, D.C. had just such strong momentum, you know, in the first half of the year. And it really wasn't until we kind of got into that late June and July period where we started to feel a little bit of this softening or a pause. But like I said in the prepared remarks, the minute we pulled back on some of that rate acceleration, we saw that demand come back and were able to recapture some of that occupancy. So I think for us, this remains kind of one of these watch markets, right? We get a lot of headlines. You've got a lot of the kind of government layoffs that will kick into gear here in September, and we just need to keep our eyes on it.

Thank you. We'll take our next question from Eric Wolf with Citi.

Hey, thanks. You discussed some of the dynamics for the setup for 2026, but to the extent that renewals have performed a bit better than expected compared to new leases, is it setting up for a situation where you're getting to lease? Is it a bit bigger than normal at year end and thus could impact 2026, or is that not the right way to think about it?

Hey, Eric, it's Michael. So, I mean, right now, I guess I would tell you the portfolio has a loss to lease of about 2.6%. Kind of did what you thought. You know, we started the year at a moderate gain. As rent acceleration kicked in, it flipped us into the loss. You know, right now, the loss is probably 50 to 100 basis points lower than what you would expect. And that's really just from the dampening effect of July not getting up to that peak level. So as I think about for the rest of the year, you know, we do expect normal rent deceleration to occur in the third quarter and even into the fourth quarter. So I think at this point, I wouldn't be surprised to see us back into a moderate gain. But I don't think we're going to see anything that's really well outside the realm of norm.

That's helpful. And then I believe you said a moment ago that you don't really see the Sunbelt recovering that much next year. I guess I just wanted to dig into that further because it does seem like absorption has been very strong in those markets, supplies coming down next year. And if I think back to some of your acquisitions, I thought, and you might remember this wrong, but I thought year two was expected to see some pretty big rent gains. So I was just trying to understand if that sort of view on the Sunbelt was a change and sort of what drove that change.

Hey, Eric, it's Alec. It's really a property-by-property, sub-market-by-sub-market consideration. And there are certainly pockets they're seeing very, very little supply. And a lot of the properties that we bought that are entering New Star are in that new store. I'm sorry, they're entering same store are in that condition. So, you know, I think that we will hit our performance. We're on track to do that now, and we do expect to see recovery. But there's certainly other markets. You know, Austin is an example where we have three properties, but other markets like Nashville and Charlotte and Phoenix that just have this overhang of units that still need to get absorbed. So, when we talk about the Sunbelt more broadly, it seems to us that the challenges are going to extend into 27 in some cases.

Got it. Thank you.

We'll go next to Hendel St. Just with Mizuho Securities.

Hi, this is Mike on for Hendel at Mizuho. My question is, can you talk more about your near-term expectations and operating strategy for D.C. and L.A. markets into the back half of the year. How much do you expect concessions to pick up from here?

Yeah, hey, Mike, this is Michael. So, you know, I think in the D.C. market, we are going to have a bias right now towards maintaining the occupancy and what we see. You know, concession use right now in the market, it is very isolated. You know, there's still a lot of supply in D.C. right now, but it's a dramatic drop off in 2026. So I think for us, we're going to watch just the level of competitiveness overall with the concession use in D.C., but I do expect we'll see some kick into gear as we get into that shoulder period. You know, specific to L.A., I think it really does vary as to which submarket we're talking about. You know, it was a great surprise for us to see some momentum in West L.A., as I said in my prepared remark. We haven't seen that in many quarters, so I don't anticipate we're going to see a lot of concession use there. But I think clearly in, you know, the downtown Koreatown, Midwilshire, you know, you're going to see concessions continue in full force, probably for the balance of the year.

Thanks for that. And just one follow-up, where are you sending, you know, in terms of July real-time leasing data, where are you sending renewals out for July, August, September?

Yeah, so for the next several months, all of the renewal quotes have been sent out, and we sent out anywhere, you know, just slightly over 6%. And I think right now we would expect to achieve increases somewhere around four and a quarter to four and a half percent on a net effective basis. We have a lot of great insights. We have a centralized renewal process right now. A lot of confidence in this renewal performance. You know, but typically this is the time of the year, you know, that we tend to lean into retention, tend to negotiate a little bit more as we enter into the shoulder period. And at this point, we expect that's how we're going to operate the portfolio.

Thank you.

We'll be next to John Kim with BMO Capital Markets.

Good morning. I'm not sure if you addressed this, but is there an update on your blended lease guidance for the year? I know you provided third quarter, but just how does the year shake out with seasonality coming up?

This is Michael. So, again, we gave the guidance range for the third quarter being 2.2% to 2.8%, so a midpoint of 2.5%. That mirrors our year-to-date blended performance. I think sitting here today, I would tell you that at the beginning of the year, we gave a blended guidance range of 2% to 3%, so a midpoint of 2.5%. I do think we're going to see some deceleration in the fourth quarter. So sitting here today, I would say we're probably pointing to that bottom half, anywhere between a 2% and 2.5% for the full-year blend now, so like 20, 30 basis points off. Okay, great. Thank you.

And then my second question is on cap rates you're seeing in the Sun Belt versus your more established markets. Do you anticipate more attractive opportunities, especially in markets like D.C. and New York, where there could be some political uncertainty?

Hey, John, it's Alec. Yeah, we're looking at all of our markets for opportunities, but we still want to balance the portfolio out. So it would have to be a compelling opportunity for us to increase in a place that we already have a really good exposure. But that could happen. So we're certainly, I haven't seen it yet. Cap rates are around a five in most places and in some of the markets, 475, and particularly some of the expansion markets where people are perceiving that there'll be more recovery. but as I just said, you know, some of these markets, we're just not so sure about the speed of that. So we're out looking for opportunity every day, but we would match that with dispositions that we also have in the market.

Thank you.

We'll go next to Alexander Goldfarb with Piper Sandler.

Thanks, and good morning. And Alec, best in retirement, Bob, best in CIO, and welcome aboard, Brett. So two questions here. First, Mark, you mentioned the quality of life improvement that's really helped in San Francisco and Seattle. Obviously, in New York, we're debating going the opposite way. But at the same time, Mondani's policies on rents, you know, with the regulated units would be a boost to market rate rents, you know, if you freeze the regulated part of the market. So as you guys look at your New York exposure, do you view the rent freezes as a net positive and more than offsetting quality of life concerns? Or are you more concerned about potential quality of life versus the ability to gain on market rents?

Alex, thanks for those good wishes to the team.

Yeah, we're thinking about all those things. So let me just talk about how we're thinking about the election. And there is a fair bit of time to go until November. But, you know, Mr. Mamdami has spoken frequently about needing to increase the housing supply in New York for New Yorkers at all income levels. So we have been working through the trade associations to just remind him and his staff about how important the private sector can be in meeting that goal. I mean, as a New Yorker, you know that public-private partnerships like the 421A program, like the office to residential conversion programs, have been really helpful in adding units to the market. And we are also trying to get across the point that to the extent you freeze rents or do other things that are anti-housing, you're going to discourage capital in New York. And that's going to mean that less units are preserved and less units are created. So we're having those kinds of conversations. Again, there's a while to go to the elections resolved. Just to remind everyone, a lot of the power on rent control and a lot of other big issues rests in Albany, not in the mayor's office. So the amount of things that can be done is a little bit more limited than maybe the campaign rhetoric. So we have a relatively small portfolio percentage of our New York portfolio that would be subject to any changes in the rent stabilization increase rates. So yeah, and, you know, here in Chicago, we have a new mayor And, you know, quality of life here has actually improved over the last year. So we think that the dialogue has shifted and we think people of all political stripes are interested in improvements and quality of life and balancing both, you know, justice and personal security. So, you know, we're hopeful, Alex, that that continues and New York keeps making good progress there. And we'll keep pushing with the, you know, potential mayor's office to discuss the benefits of housing supply versus overregulation.

Okay. The second question is, you know, you talked about D.C. and Doge, but Boston with foreign students, clearly Boston's a big college town. So just wondering if there's been any change in foreign student appetite, given, you know, they are a part, an outsized part of that renter market.

Hey, Alex, it's Michael. So, yeah, so we've been watching, you know, so for our students is a pretty low percent of our move-ins overall in the They represent about 3% of our occupied units. And we still have about another month to really track all of the inbound student activity. Sitting here today as a snapshot for Boston, it does appear that the student inbound activity through the end of July is a little bit below normal, so a little bit below where we were at the end of July of 2024, and inside that, we do see a little bit of softening in the foreign inbound migration as well. These are very small quantities, though, so I don't know if that I would read too much into it yet, and like I said, we still have a month to go until we really close out kind of that student season.

We'll go next to Michael Goldsmith with UBS.

Good morning. Thanks a lot for taking my great question. Generally, it seems like the demand is there, but I guess I was just kind of wondering, what do you think it would take to see a little bit more pricing power?

Michael, it's Michael. So, I mean, at this time of the year, it's not very common to all of a sudden see acceleration into pricing power. I think clearly we would need to see some consumer confidence improve in many of the markets and any kind of acceleration and job growth. That being said, I mean, we are going to go into a period where we do have easier comps in many of our major markets. And we have a period of time where we're bumping up against less and less supply pressure. So that could be a kind of mitigating factor to normal deceleration trends. But at this time, I don't anticipate us seeing kind of acceleration.

Yeah, and as a follow-up, have you seen any impact on the San Francisco ban of algorithmic pricing? Has that had any impact on things?

Yeah, so I think I heard the question right. It was algorithmic pricing. So we, in San Francisco, I mean, there's various proposals in all sorts of jurisdictions on this. So, you know, first off, we do obviously operate in full compliance with all these rules. And so it's not a big issue for us. We do use across the portfolio LRO where we're allowed to. But generally speaking, LRO, which is our yield management tool, is just one tool in the toolbox. We use a lot of different means to price our units, and it just doesn't matter a great deal to us if we can't use LRO going forward. So I will say, though, it seems like it's more of us that these sort of regulatory efforts are more of us attacking a symptom of the problem of a housing shortage. It isn't algorithmic pricing that makes rents go up and down. I mean, Dallas has declining rents and there's plenty of people using algorithmic pricing there. It's the dynamic between supply and demand. And so the markets that add supply are going to have less of this kind of outsized rent growth. And so I feel like we need to educate policymakers that while it may feel like emotionally rewarding to ban algorithmic pricing, that isn't what's causing rents to go up. It's the supply and demand dynamics in these markets. So we'll work with our trade associations to do that. But it isn't going to make a great deal of difference to us in how we price our units.

Thank you very much.

We'll go next to Adam Kramer with Morgan Stanley.

Hey, great. Thanks for the time and all the best to you, Alec. going forward. I just wanted to ask about, there have been a few articles recently about sort of AI and sort of the impacts on call it entry level sort of jobs. And, you know, I think both in sort of, you know, types of employment that, you know, you would think would be disrupted by AI, but also other types of jobs as well, sort of focusing on an entry level demographic. I know that's sort of disproportionately a renter kind of demographic. So I'm wondering if you've seen anything in your portfolio, sort of inbound demand-wise, that, you know, can maybe see if AI is having a real impact here, or maybe these articles are a little bit off base?

Yeah, thanks. That's a really interesting question, and I think we're in the early innings of determining the impact of AI. I think, as you heard from Michael Manelis's remarks, we do see the impact of AI in demand in San Francisco, and that's why it's good for us to be levered to these tech hubs as well as to markets that are maybe more broadly diversified like Los Angeles or Atlanta. So we do see some benefits of the portfolio already from the money and the hiring being done to get these big, large models moving and grooving. But I think it's a little early to tell whether AI will affect entry-level lawyer employment and other people that do occupy our units throughout the country. I do wonder if there aren't going to be a whole new class of jobs created relating to AI governance, relating to how you ask the model questions and how you deal with it, and outputs. And what I've heard from some investment analysts and others is it's great to ask the model questions, and it's great to check those answers very thoroughly with your analyst afterwards. So I think the job story is still to be written on AI in the country as a whole, but we're happy to be levered to where those jobs are being created, like in San Francisco right now.

Great. That's really helpful, Mark. Thank you. Maybe as a second one here, just on capital allocation, recognizing sort of the acquisition guidance was reduced as positions maintained. I think you guys have been pretty clear in the past on sort of your view around buybacks, your view around development, and only wanting to sort of use retained cash flow for development. So, just wondering as you sit here today, you know, how would you sort of stack rank the capital allocation opportunities, the capital use opportunities, and sort of any change to the prior thinking with regards to buybacks, development, or maybe something else here?

Yeah, thanks, Adam. It's Mark again, and Alec may supplement this a little. So, I mean, we continue to think about acquisition opportunities of price correctly as helping us attain that goal of the balanced portfolio I talked about and driving better cash flow growth over time. And we think that is a good use of capital, but those acquisitions have been priced very dearly in the markets and sub-markets we're interested in. So we'll remain really thoughtful. We're looking really hard at some deals, local supply and demand conditions, where we can buy at discounts to replacement costs. But again, we've been very disciplined on that. So we do long-term still like buying in the sub-markets and markets we've talked to you about, you know, Dallas, Denver, Atlanta, suburban Seattle, suburban Boston, maybe some suburban DC. So we'll keep focused there, but that is going to be a goal. We're open to doing buybacks. We did some, as you know, in late 23 and early 24. If we were to do buybacks, we would fund those with asset sales. I think that's more prudent right now than incurring additional debt. And you can see that we've been selling some of our lower return assets at this point in the high fours to low to mid five cap rate range. And when you compare that to where our stock's trading, that's a meaningful amount of value creation for shareholders. We do need to stay conscious, though, on the buyback side about descaling the company. We've talked on some of the calls. I know you know this, that you can really create pressures on overhead and operating expenses by getting the portfolios too small in a particular market. So that's something to be mindful of. We also have a lot of gain in a lot of our assets, tax gain. And again, that's kind of a natural limiter on how much dispositions can fund share buybacks. We're also looking at some development deals. I think risk adjusted, you need to be super thoughtful about development. We're glad given circumstances, we have a small development platform. We only have about $200 million of funding that we need to do yet to finish the three assets that are still in flight. But we're looking at some development deals and in some locations we think have particularly good dynamics. You may see us start a few of those. So those are the big three that we're kind of balancing out. I don't know, Alec, if there's anything you'd add?

Yeah, I'd just say we supplement that by investing in our existing portfolio. We have renovations going on throughout the country. And then specific to California, we're participating in the accessory dwelling unit program, ADUs, throughout that state. So keeping the portfolio fresh that way.

Great. Thanks for the time.

We'll go next to Alex Kim with Zellman and Associates.

Hey, guys. Thanks for taking my question here. With the forecasted deceleration of rent growth for the back half of the year. Just curious, what factors do you most closely track and determine upside or downside of your assumptions, and how does that compare to historical norms?

Yeah. Hey, Alex, Michael. So, I mean, I think there's a lot of things that we're watching all the time, and I think we don't have, you know, we have multiple levers that we're looking at, which is the goals to maximize cash flow, revenue growth for the shareholders. So right now, as I think about rent seasonality, I'm looking at just pricing trends, like what is normal rent seasonality look like? How do rent sequentially decelerate as you leave the peak leasing season into the shoulder period? How are we doing with retention? What are we seeing, hearing, feeling from new prospects showing up at our properties? Are they taking longer to make decisions, etc.? So there's a lot of factors that go into that, that kind of what I would say force us to lean one direction or the other, favor rate, favor holding on to rate, favor occupancy, et cetera. And, you know, there's no one lever that I would say has more weight than the other right now. We're looking at all of these combined to get a feel as to where do we sit relative to expectations for where we are in the season. Sure.

Okay. And then for my second question, you cited the excellent rent-to-income ratios that you've been seeing within your portfolio. Just kind of combining that with the deceleration and job growth, any concerns that the level of demand isn't sustainable or is it the opposite way around where you're able to push rents in an environment where the macroeconomy is a little weaker and maybe others take a little softer stance?

Yeah, thanks for that question. I think that's a market-by-market determination about how stressed some of these folks are. Our markets, particularly out west in San Francisco, Seattle, we've talked about people getting, our average resident getting 30% cumulative increases in compensation since 2019, whereas rents are flat, now slightly higher, but basically flat to 2019. And so there's a lot of room there. So I think, I mean, people obviously need jobs, but these are highly skilled individuals. that generally are our residents. And my expectation is that there's plenty of room to push in our markets. We're not seeing any stress from our customer. And, you know, again, if the job machine slows down, I think we'll feel it, like all owners of rental housing will feel it. But I think a lot less than many others, given where our assets are, and that our customer, honestly, is at disproportionate compensation increase relative to rent level increases.

Got it. Thanks for the details.

We'll go next to Jamie Feldman with Wells Fargo.

All right. Great. Thanks for taking the question. So I guess to go back to your comments on potentially starting new development, can you talk about what markets look interesting? Is it more the expansion markets, your legacy markets? And then how do you think about the decision to do it through a JV or unbalance sheet? And what would your targeted yields or returns look like?

Hey, Jamie, it's Alec. What we're really looking to do is balance out our development pipeline in both places like suburban Boston and suburban Seattle, where we have developments going on right now with targeted locations within the expansion market. So a little of both is the answer that we're pursuing right now. And we have some opportunities in the pipeline that we're working on. And in terms of yields, you know, like everyone else, we're chasing a 6 percent yield on current rents, on current costs. And that, you know, if you're honest about rents and, you know, you can work a deal hard, but it's hard to get to that 6%. So that's why the opportunities are scarce. It's not for a lack of trying on our part. We do think it will be a good opportunity to deliver in a couple of years. But to get those numbers to really underwrite and pay you for that risk is a challenge right now.

And just to talk a little bit more about development, balance sheet versus JV. I mean, we do do balance sheet deals. I mean, we have a deal that is a phased deal. We knocked down a couple of buildings in the San Francisco Bay Area of an older property and put in some newer products a couple miles from the Apple headquarters. It's just killing it. It's doing very, very well. So we're able to do on balance sheet stuff, but we like using joint venture partners. These are large national developers, by and large, who we can trust to complete on time and on budget. And we're leveraging their overhead instead of adding to our own. And that leaves us like just more internal flexibility. We can be much more agnostic between doing development or just buying or doing neither. So we like the JV format as a way to sort of leverage our teams here.

Okay. It's an interesting point.

How do you think about the cost of doing that?

I assume you get a lower yield and return on capital. well hey jamie italic yeah yeah we're balancing off not having to have all the overhead um that you need to to have do all the things wholly owned um with the fact that you might have to pay a promote if a deal does well and hopefully obviously we hope the deal does well but when they don't we don't have to pay that promote so it balances out pretty well for us um in terms of both the limiting the overhead but also limiting how many deals we feel like compelled to do because we've already got money into them because we're often entering the deal when it's already you entitled and ready to go.

Yeah, our development over at, as a matter of record, is less than $4 million a year. So it's just not that significant. And that's a real benefit to us compared to a lot of other folks. Yeah, that's a good point.

And then you had mentioned earlier accelerating rollout of AI across the platform. Can you talk about, as we think about the future, just incremental costs to do that, what you think the impact could be on margins, revenue upside? Is it something we can be modeling or it's more just internally you get the benefit?

Yeah. So, Jamie, this is Michael. I mean, we laid out some of this through the investor day. So I think when you think about the innovation initiatives that we have here, you know, right now, as we think about deploying AI within our portfolio, we're very focused on enhancing the customer experience at the same time, optimizing the operations or looking for operating efficiencies. You know, in terms of the actual lift for sustained result, I think that comes over time as we continue to deploy these types of applications. But the first couple of use cases that we're after are really focused about streamlining and creating a seamless customer experience at the same time of driving some of the overhead kind of efficiencies through the portfolio.

And, Jamie, it's Mark. If I could just expand on that, because Michael is doing such a good job with all types of technology, including AI on the op side. But what you're going to see from us is just this expansion of technology and use of technology to make better decisions, to move faster and lower costs in areas away from operations. Most importantly in capital allocation, we've got a lot of initiatives going on using more sophisticated business intelligence tools, using more data to make better capital allocation decisions over time. We have a lot of really cool in-flight projects that we think will help both in the legal department and the HR department and finance to just be more productive generally and to give our people internally a better experience, but also to be more efficient. So I think it's not just AI, it's technology in general. And it's not just operations. It's all manner of things here. And we all have goals, everyone in the company at the top of the house, to sort of use technology to be more efficient, to make better quality decisions. And that includes, of course, Michael's amazing operating machine, but also includes capital allocation and all the back office stuff as well.

Do you think that leads to G&A savings as well?

I think it's going to retard the rate of growth of overhead over time. I think these folks are very expensive people, and you may see us go up before we go down in some regards, but I expect that over time we will have a slower rate of growth of our overhead functions because we'll use technology in places where it can make us more efficient.

Okay, interesting. Thank you very much for the thoughts.

We'll go next to Rich Hightower with Barclays.

Hi, good morning, guys. Thanks for squeezing me in here. And congrats again to Alec, Bob, and Brett as well. So going back to the changing composition of the same store pool for next year, which I know we've talked about on prior calls, but is there a way to sort of help quantify, you know, if you, let's say, if you had included those same assets in the pool this year, what that would have meant for same store? And then, you know, conversely, what that comp looks like for next year? Is there a way to think about that for our modeling purposes?

Yeah. Hey, Rich, it's Bob. I think the best way to think about it is to, they're in the expansion markets. And if you actually look at the sequential same store set, many of them or most of them are included in the sequential same store set. So you'll notice if If you look on one of the same store pages, we have around 81,000 units that are in sequential. And that, of course, would include basically everything that we would have acquired that has not yet got into the portfolio, except for the transaction that happened in the quarter, right, or anything in the first quarter. So that's probably the best indicator of like absolute number of units. Given where the expansion markets are today, it is modestly dilutive, right, in 2020, in 2025 if you would have otherwise put them into the same store set. That is, of course, consistent with what we underwrote, and they're performing with what we underwrote. But we would think that as we roll into 2026, you will see a good framework or good upside potential. And most notably, when you look at the stats in 26 around the specific performance, what these additions to the portfolio do is really balance some of those portfolios in those markets, like Michael mentioned, Right. So today you have such a small sample set in the same store related to the expansion markets that it's like very volatile on some of the leasing spreads. It's oftentimes, you know, suboptimal in terms of the portfolio allocation. But by these recent acquisitions should balance us out better and you'll see probably a smoother, more consistent and better performance overall. So we think it's good. And I think as you go on even further into 27 and thereabouts, it should be even more additive. as supply comes down in these markets and you see growth coming out of the expansion markets.

Okay, that is helpful. And just to be clear, and again, I know we've covered this before, but the same store pool overall recomposes on a quarterly basis. Is that how you guys do it?

Yeah, so we have actually three sets, right? So you have a full year. Basically, in order to in order to be in same store, we have three sets of same stores, but in order to be in same store, you need to have been owned for the full period of the comparable period. So for the full year same store set, you'll see we have 75,000 some odd units. That means that we fully own them in 2024 and fully own them in 2025. In the quarterly, you just need to have been owned for the full period and stabilized, I should note, in the full period for the corresponding quarter. So we had to own you in Q2, for instance, Q2 compared to Q2 of the prior year. And in the sequential, which is always the largest when you're doing acquisitions, the sequential set is always the largest because we had to own you in Q1 of 2025 and in Q2 of 2025 to be included. So we have three sets to keep life interesting.

And just to give it a little more point on that, and Bob's still our CFOs, we can correct me as an old CFO if I get it wrong, we're going to add about 4,000 units to the annual same store set. And those will be, as you guessed, Rich, predominantly almost entirely in those expansion markets. They will generally, because of their locations, improve our results quarter over quarter. But because those markets are slower growth than our legacy markets, they're going to slow down the company's total growth rate, which is what Bob was implying in his beginning answer, but I think you'll see some numbers that are less volatile in Dallas when you add in all these suburban acquisitions, which just tended to be the things we acquired in our second or third year of being back in those markets, as opposed to being the initial properties we acquired. Does that make sense?

It does, yeah. And if I'm still confused, I'll follow up offline, but I appreciate the response there.

Well, the next two, Julian Bluen with Goldman Sachs.

Hi, thank you. Thank you for the question. Just on D.C. and Boston, those were helpful comments earlier on the sort of early signs of softness you're seeing in those markets. I think what's just been striking is just how solid the blends in those markets were in the second quarter. But should we read into your comments around prioritizing occupancy that you think blends could actually decelerate more than seasonal norms in the back half of the year in those markets?

Hey, Julian, it's Michael. No, I don't think I would read into that yet. I think both D.C. and Boston continue to be the headline risk markets, and we need to just be paying attention to it. We saw a little bit of deceleration in the end of the peak leasing season in D.C. Boston's kind of been steady, you know, so I think that does warrant us leaning in towards that occupancy play. But, again, you're going into the shoulder period. They're pretty pronounced seasonal markets to begin with, and I think just normal deceleration probably allows us to maintain that lean towards occupancy.

Okay, great. That's all from me. Thanks.

We'll go next to David Seagal with Green Street.

Hi, thank you. Maybe just going back to your comments about the transaction market, it sounds like the expectation of lender pressure leading to more activity has not played out. And I'm curious if you have any thoughts on why is that, and is it just going to be delaying the activity until next year or until rents recover, or is it just not going to happen at all?

Hey, David, it's Alec. Yeah, you're right. There was an anticipation going into the year that there would be more lenders just eager to get their money back. And what we're hearing from our conversations is that, in fact, given the slowdown in new business, that the lenders actually want to keep money engaged in the multifamily sector. So are much more willing to extend than we had anticipated, frankly, than I think they thought they were going to anticipate going into the year. So, you know, that pressure still continues to build, though, in the longer run because so many new properties are delivering, particularly in these expansion markets. So we do think we'll see more opportunity, and, you know, we're poised to take advantage of that.

Great. Thank you.

And then with regard to your CapEx guidance was reduced a little bit. I'm just curious what's driving that, and would there be any associated impact on revenue growth?

Hey, David, it's Alec. It's really just some projects taking a little longer than we thought they would, and some of the renovations, fewer units. But things we will get to in the next 12 months or so. And one of them is a conversion of some office space in Boston to residential that just has gotten tied up a little bit with the city. But we expect that to happen as well.

At this time, there are no further questions. I'll turn the call back to Mark for any additional or closing remarks.

Thanks, Jennifer. Thank you all for your time and interest in Equity Residential today. And we'll see you on the fall conference circuit.