Adam Kramer

Adam Kramer of Morgan Stanley requested more detail on the recent market softness in Washington D.C. and asked for the company's high-level perspective on the New York City mayoral primary and CEQA reform in California.

Answer

COO Sean Breslin attributed D.C. softness to a combination of resident uncertainty, rising concessions, and weak job growth. Regarding policy, he noted any NYC rent stabilization changes would affect about 2,100 units and not be immediate. CIO Matthew Birenbaum explained that California's CEQA reform should reduce development costs and timelines but won't fundamentally alter the supply-constrained outlook.

Adam Kramer asked how the company's job growth outlook has changed since the beginning of the year and requested the renewal offer rates for May and June, along with the typical negotiation spread.

Answer

CEO Benjamin Schall stated that the consensus job growth forecast they use has moderated to around 1 million net new jobs for the year, down from previous expectations. COO Sean Breslin disclosed that renewal offers for May and June are in the low-to-mid 5% range, with a typical 100 to 150 basis point spread between the initial offer and the final signed rate.

Adam Kramer asked about the on-the-ground impact of the Los Angeles wildfires on AvalonBay's portfolio, including potential incremental demand or headwinds from eviction moratoriums. He also questioned the surprising acceleration in the job growth forecast shown in the presentation.

Answer

COO Sean Breslin reported a minor uptick of about 60 leases from displaced residents but noted most are seeking single-family homes. He confirmed that potential eviction moratoriums are not factored into guidance as the situation is still developing. CEO Benjamin Schall and COO Sean Breslin clarified that the job growth chart was not for the overall economy but specifically for the professional services and information sectors in their Southeast regions, which are expected to rebound.

Adam Kramer of Morgan Stanley inquired about the factors supporting the projected reacceleration in blended lease growth for November and December. He also asked for an outlook on bad debt, specifically questioning how long it might take to return to pre-COVID levels.

Answer

COO Sean Breslin explained the reacceleration is driven by higher asking rents (up ~3% YoY) compared to softer comps from late 2023, which will primarily boost new move-in rent change. He projected blended rent change to rise from 1.2% in October to the high 1% range in November and mid-2% in December. Regarding bad debt, Breslin stated that while it's improving, he does not expect it to fully normalize in 2025, suggesting 2026 is a more likely timeframe.

Adam Kramer inquired about the company's observations regarding supply across different buckets, including build-to-rent (BTR), existing home shadow supply, and new homes from builders, and how current trends compare to six or twelve months ago.

Answer

Lincoln Palmer, Chief Operating Officer, explained that supply is analyzed at a local level, combining internal data with external and proprietary sources. He noted an impact from for-sale-to-rent conversions, causing some rate pressure and occupancy effects, though many markets like the Midwest and Western regions (Salt Lake City, Seattle) are performing well. He expects BTR and multifamily deliveries to be off peak and improve into 2026, depending on demand.

Adam Kramer asked about American Homes 4 Rent's observations on supply dynamics across different buckets—Build-to-Rent (BTR), existing homes, and new homes from builders—and how current trends compare to six or twelve months prior.

Answer

Lincoln Palmer, Chief Operating Officer, emphasized the importance of local-level supply analysis, combining internal data with external sources like Zillow and Burns, and proprietary information. He acknowledged an impact from for-sale-to-for-rent conversions, noting some rate pressure and occupancy effects, but highlighted strong performance in markets like the Midwest, Salt Lake City, and Seattle. He also stated that BTR and multifamily deliveries are off-peak and expected to improve into 2026, depending on demand.

Adam Kramer from Morgan Stanley inquired about the future of the home disposition strategy as more assets become unencumbered and asked about the company's plans for managing leverage. He also asked if the lease expiration management initiative was complete.

Answer

CFO Christopher Lau noted that with 18,000 homes now unencumbered, there is a multi-year disposition opportunity for 10-15% of them, providing capital for recycling. He confirmed comfort with leverage in the 5x range. CEO Bryan Smith stated the lease expiration initiative is just beginning and will be expanded to optimize initial leases and community-level expirations.

Adam Kramer asked about the future of the company's disposition strategy now that securitized homes are becoming unencumbered, how the company plans to manage its net debt to EBITDA, and whether the lease expiration management initiative is now complete.

Answer

CFO Christopher Lau explained that paying off securitizations has freed 18,000 homes, with 10-15% being potential disposition candidates over the next few years, providing capital recycling opportunities. He added that leverage in the low-5x range is comfortable and provides growth capacity. CEO Bryan Smith clarified that the lease expiration initiative is just beginning, with plans to expand its sophistication and apply it to new leases and community management.

Adam Kramer inquired about the future of the home disposition strategy, particularly with more homes becoming unencumbered, and asked if the lease expiration management initiative is now complete.

Answer

SEVP & CFO Christopher Lau explained that with 18,000 homes recently freed from securitizations, there is a multi-year disposition opportunity of potentially 10-15% of those assets, providing capital for recycling. CEO & Trustee Bryan Smith clarified that the lease expiration initiative is just beginning, with plans to extend it to new leases, community-level optimization, and more granular timing.

Adam Kramer of Morgan Stanley asked about the current priority between building occupancy versus pushing new lease rates. He also inquired about any demographic differences between residents in build-to-rent (BTR) homes versus traditional scattered-site homes.

Answer

CEO Bryan Smith explained that the focus is on balancing occupancy and rate growth, aiming for a flatter occupancy curve this year compared to last. He noted that resident demographics between BTR and scattered-site homes have been remarkably consistent, with similar age and household profiles, though BTR may attract slightly higher incomes due to newer product.

Adam Kramer of Morgan Stanley asked about the drivers of strength in the Midwest portfolio and how 2025 compares to a 'normal' pre-COVID year. He also inquired about what could cause the year to deviate from normal seasonality.

Answer

CEO Bryan Smith attributed Midwest strength to the high quality of AMH's single-family detached assets, migration trends, and a lack of comparable supply. He characterized 2025 rent growth expectations as similar to pre-COVID levels, but noted the key difference is a higher normalized occupancy expectation in the 96% range versus the previous 95% area, driven by platform improvements. CFO Chris Lau added that potential upside to the guide could come from improvements in bad debt and capturing upswings in the leasing season, similar to 2024.

Adam Kramer asked for a comparison of how infill properties are performing relative to build-to-rent (BTR) communities, especially concerning new supply. He also requested a reminder of pre-COVID bad debt levels and the expected path back to normalization.

Answer

COO Bryan Smith used Phoenix as an example, noting that AMH's detached BTR product has occupancy over 96%, outperforming the scattered-site portfolio there, despite Phoenix being a high-supply market. He highlighted that most new supply is attached product, unlike AMH's. CFO Chris Lau stated that historical bad debt ran between 70-90 basis points. He noted that while it ticked up seasonally in Q3, it was sub-1% in the first half of the year and the path to normalization in 2025 depends on the processing speeds of local court systems.

Adam Kramer asked for clarification on the 'elongated' recovery in expansion markets, specifically whether it's a lease growth comment, relative to seasonal curve expectations, and market rent growth expectations for next year. He also inquired about same-store pool changes for next year, including the percentage of expansion markets and specific assets folding in.

Answer

Mark Parrell (President and CEO) clarified that 'elongated' refers to the time it takes for full absorption of supply, leading to persistent concessions and minimal to negative rent growth. He expects coastal markets to have significantly higher same-store revenue growth next year. Michael Manelis (COO) estimated about a 5,000-unit increase in the same-store set for 2026, primarily from suburban expansion market assets in Dallas, Atlanta, and Denver, which are expected to perform better than existing urban same-store assets.

Adam Kramer asked for clarification on the 'elongated recovery' in expansion markets, specifically if it pertains to lease growth, seasonal curve expectations for 2026, and market rent growth expectations for coastal versus expansion markets. He also inquired about changes to the same-store pool for 2026, including the percentage of expansion markets and specific assets being added.

Answer

Mark Parrell, President and CEO, explained that 'elongated' refers to the time needed for full absorption of supply, leading to persistent concessions and minimal rent growth. He expects coastal markets to have significantly higher same-store revenue growth in 2026, while expansion markets will focus on stabilizing occupancy and reducing concessions. Michael Manelis, Chief Operating Officer, estimated a 5,000-unit increase in the 2026 same-store set, primarily from suburban expansion market assets, which Mark Parrell noted are expected to perform better than existing urban assets in those markets.

Adam Kramer of Morgan Stanley inquired about any observed impact from AI on entry-level jobs and inbound renter demand. He also asked for an updated ranking of capital allocation priorities among acquisitions, buybacks, and development.

Answer

President & CEO Mark Parrell noted it's 'early innings' for AI's impact but cited positive demand from the AI sector in San Francisco. On capital allocation, he stated that acquisitions are a goal but currently too expensive. Buybacks funded by asset sales are an option, balanced against descaling risks, and select development deals are also being considered. EVP & CIO Alexander Brackenridge added that reinvesting in the existing portfolio is also a priority.

Adam Kramer of Morgan Stanley inquired about any observed impact from AI on entry-level jobs within their renter demographic. He also asked for a current ranking of capital allocation priorities, including acquisitions, buybacks, and development.

Answer

President & CEO Mark Parrell noted it's early, but they are seeing a positive impact from AI job creation in tech hubs like San Francisco. Regarding capital allocation, he stated that acquisitions remain a goal but are currently priced too high. Buybacks funded by asset sales are an option, balanced against descaling the company. Development is also being selectively considered. EVP & CIO Alexander Brackenridge added that investing in the existing portfolio through renovations is also a priority.

Adam Kramer from Morgan Stanley asked for an assessment of the return-to-office demand cycle in Washington, D.C., and questioned why development starts seem more likely now despite increased uncertainty.

Answer

CEO Mark Parrell stated they have no special insight into the D.C. return-to-office cycle, noting only a 'handful' of transfers and anecdotal street activity. He explained that development looks more appealing relative to acquisition cap rates below 5%. The strategy would be to selectively develop 2-3 assets to deliver into a supply-constrained environment in a few years, despite near-term uncertainty.

Adam Kramer asked for more detail on the expectation for higher office-using job growth in 2025, particularly what is driving the West Coast optimism and the outlook for markets like New York, Boston, and D.C.

Answer

CEO Mark Parrell explained their optimism is based on third-party economic forecasts (Moody's), their own operating dashboards, and signs of a bottoming in tech-related job corrections. He noted that national data for information and professional services jobs began improving in late 2024, which bodes well for tech-heavy markets like San Francisco and Seattle.

Adam Kramer of Morgan Stanley questioned the achievability of the Witten Advisors forecast for 4-5% rent growth in 2026, asking if that timeline is realistic or more likely a 2027-2028 story.

Answer

Chairman & CEO Ric Campo expressed confidence in the 2026 forecast, provided the economy remains stable. He emphasized that the key drivers are factual: supply deliveries will be down approximately 50% from their 2024 peak while demand remains strong. He argued that once this temporary oversupply is absorbed, the setup for the Sunbelt markets is "really good."

Adam Kramer of Morgan Stanley asked for an update on the full-year blended lease growth guidance of 1-2% and the expected cadence of new lease growth throughout the year.

Answer

President and CFO Alex Jessett reaffirmed the previous guidance, stating, "there is no change to our full year assumptions nor any changes to the cadence of how we get there." He reiterated the expectation that new lease growth should turn positive sometime in the third quarter.

Adam Kramer asked for an update on the Washington, D.C. market, focusing on current demand trends amid discussions of federal workforce changes and the state of the local transaction market, including cap rates.

Answer

Chairman and CEO Richard Campo described the D.C. transaction market as strong, with cap rates in the mid-to-high 4% range. Executive Vice Chairman D. Keith Oden added that while there is talk of government downsizing, the push for federal employees to return to the office could actually boost demand in D.C. proper. To underscore this, President and CFO Alexander Jessett noted that D.C. Metro has shown the highest year-to-date increase in signed new lease rates across the portfolio.

Adam Kramer asked management to rank their capital allocation priorities between acquisitions, development, and other uses, and to comment on the current state of the acquisitions market.

Answer

Chairman and CEO Richard Campo explained that capital allocation is driven by maximizing cash flow growth relative to the company's cost of capital. While development continues with over $300 million started this year, he expects to be more active on the acquisition front in 2025 and 2026 as more deal flow emerges. He also highlighted share repurchases as a compelling option, noting that at the current stock price, Camden can buy back its own portfolio at an attractive implied 6% cap rate, which is difficult to find in the private market.

Adam Kramer from Morgan Stanley asked about the company's view on development and expansion opportunities compared to acquisitions. He also questioned if there were future opportunities to repurchase the remaining ground leases in the UK portfolio.

Answer

President John McLaren clarified that the company is not pursuing any greenfield development but is evaluating a handful of accretive expansion projects in highly occupied US communities. EVP & CFO Fernando Castro-Caratini confirmed there is a 'small opportunity' for future ground lease repurchases, with just over 10 UK properties still subject to them.

Adam Kramer of Morgan Stanley asked for expectations on Q3 and Q4 leasing seasonality compared to historical norms and for a high-level outlook on the recovery pace for Sunbelt markets into 2026.

Answer

SVP & COO Michael Lacy stated that while historical Q3/Q4 blends would be 3.5-4%, the current forecast is for blends around 2%, with Q3 slightly better than a seasonally weaker Q4. Regarding the Sunbelt, he noted that recovery varies by market; Tampa is showing positive momentum, while Austin is improving but still negative, and Dallas has a ways to go before new lease growth turns positive. He declined to give a specific 2026 outlook.

Adam Kramer from Morgan Stanley asked for an update on real-time fundamentals in Washington, D.C., a key market for UDR, with a particular focus on return-to-office trends and their impact on demand.

Answer

COO Mike Lacy described D.C. as strong, with 4.9% revenue growth in Q1, occupancy over 97.7%, and blended lease rates accelerating from 3.5% in Q1 to 4% in April. He confirmed that return-to-office is helping drive this performance. CFO Joe Fisher added supporting data, noting that public transit ridership is up double-digits and that a recent spike in jobless claims has since normalized back to pre-pandemic levels, suggesting the negative trend has passed.

Adam Kramer from Morgan Stanley inquired about how close UDR is to starting new developments based on current yields versus cost of capital, and asked for clarification on capital allocation priorities.

Answer

CFO Joe Fisher indicated that while they are 'getting close' to new development starts, they are not quite there yet, with 2025 being a more likely timeframe. He confirmed that the redevelopment program is a core, ongoing business activity, with around $75 million being spent in 2024 and a similar amount planned for 2025. The highest priorities for new capital remain DPE program recycling, JV acquisitions, and OP unit transactions.

Adam Kramer of Morgan Stanley asked for an update on the company's informal guidance for mid-3% blended rent growth for the full year, given the strong performance to date.

Answer

EVP & CFO Jonathan Olsen declined to revise the informal guidance at this time. He reiterated that while the resilient renewal business is a positive, the company is not yet in a position to formally change its outlook and will have more information by the next earnings call.

Adam Kramer from Morgan Stanley asked if there was any change to the informal full-year guidance of mid-3% blended rent growth, considering the strong results to date balanced against new lease headwinds.

Answer

CFO Jonathan Olsen stated that they were not revising guidance at this time. He reiterated that resilient renewal growth, which is three-quarters of the business, provides a strong foundation. While feeling comfortable with their position relative to the guide, he indicated they would have more clarity and a better opportunity to provide updates after the peak leasing season concludes.

Adam Kramer from Morgan Stanley requested an update on the build-to-rent (BTR) competitive landscape, particularly regarding new supply deliveries expected for the remainder of 2025 and into 2026.

Answer

President Charles Young confirmed that new BTR deliveries are down substantially, as previously forecasted, especially in key markets like Phoenix, Texas, and Central Florida. He noted that the company is absorbing the existing supply effectively, with these markets showing positive new lease rate growth. The forward-looking pipeline for new competitive deliveries appears significantly reduced.

Adam Kramer from Morgan Stanley asked for a quantification of the new supply impact, seeking to understand the performance difference between the company's more insulated infill homes versus its build-to-rent properties that compete more directly with new construction.

Answer

CEO Dallas Tanner explained that the impact varies by market but noted that listings from top SFR operators are up 15-20% in markets like Phoenix and Tampa. He stated that while they are fighting for new occupants on the new lease side, there is little to no impact on the renewal side of the business, with renewal rates remaining at historically normal levels. Tanner expressed bullishness, expecting new BTR deliveries to drop significantly next year, which should alleviate the pressure.

Adam Kramer of Morgan Stanley inquired about how current absorption trends compare to prior forecasts and asked for the new supply delivery forecast for the second half of 2025.

Answer

EVP Timothy Argo stated that absorption has been very strong, in line with their expectations, and is anticipated to strengthen further. He projected that the year-over-year drop in new supply deliveries will accelerate in the second half, contributing to an expected full-year decline of about 25% for 2025 versus 2024.

Adam Kramer inquired about the current level of concessions compared to a year ago and asked about MAA's capital allocation priorities and cost of capital.

Answer

EVP & COO Tim Argo stated that concessions are broadly stable at half a month to a month, slightly down from a year ago. CEO Brad Hill addressed capital allocation, explaining that with leverage at a low 4x, debt is the most attractive source of incremental capital. He added that proceeds from property dispositions will also be used to fund external growth.

Adam Kramer inquired about the macroeconomic assumptions, such as job and wage growth, that are embedded in MAA's 2025 guidance. He also requested the specific blended, new, and renewal lease rate figures for January 2025.

Answer

Tim Argo, EVP and Chief Strategy Officer, explained that the guidance assumes macroeconomic conditions will be consistent with 2024, including approximately 600,000 new jobs across their markets and continued low resident turnover. He then provided the January 2025 metrics: new lease rates were -7.1%, renewal rates were +4.6%, resulting in a blended rate of -0.9%.

Adam Kramer from Morgan Stanley asked about the opportunity for portfolio acquisitions versus one-offs and inquired about current bad debt levels relative to pre-COVID norms.

Answer

Brad Hill, EVP and President, stated that MAA finds one-off, new-build acquisitions more appealing than portfolios, which often have mixed quality and more aggressive pricing. He noted their current strategy yields superior returns. Tim Argo, EVP and COO, responded that net delinquency is currently around 40 basis points, which is very close to the pre-COVID level of 30-40 basis points, indicating a full recovery.

Adam Kramer from Morgan Stanley asked for a breakdown of the factors contributing to the Q2 blended rate growth and for a ranking of current capital allocation priorities.

Answer

President & CEO Angela Kleiman explained that Q2's in-line performance was a mix of underperformance in Los Angeles (around 1.3% blend vs. >2% expected) offset by stronger renewals elsewhere. She emphasized focusing on total revenue maximization over any single metric. EVP & Chief Investment Officer Rylan Burns ranked capital allocation priorities as: 1) fee-simple acquisitions, followed by selective development and disciplined investment in the finance book.

Adam Kramer asked how the modest sequential acceleration in blended rate growth from Q1 to Q2 compares to historical norms. He also asked what macroeconomic factors would need to change for management to gain the confidence to raise guidance after the next quarter.

Answer

Executive Angela Kleiman advised against over-analyzing the small sequential change, reiterating it's a function of the Q1 beat against unchanged guidance. To raise guidance, she said they would need more clarity on the impact of public policy changes, such as tariffs, which could affect operating expenses. She also cited the opacity of official job data as a reason for the current cautious stance.

Adam Kramer from Morgan Stanley asked if the recent Los Angeles wildfires had contributed to the January pickup in demand. He also requested a breakdown of the key drivers for the same-store expense growth guidance.

Answer

Executive Angela Kleiman confirmed they have not seen any material increase in leasing activity from the wildfires, as victims are likely awaiting insurance clarity. Executive Barb Pak detailed the expense forecast, stating the largest factor is a 2% decrease in insurance costs. This is offset by higher real estate taxes, particularly in Seattle, and elevated utility costs, leading to a 4.5% growth in non-controllable expenses and under 3% for controllable expenses.

Adam Kramer of Morgan Stanley asked for a quantification of the advocacy and lobbying expenses incurred in Q3 and year-to-date, and whether more spending is anticipated in Q4.

Answer

Executive Barb Pak reported that Essex spent $10 million on advocacy in Q3, with the year-to-date total reaching $16 million. She confirmed that the full-year guidance assumes a total of just over $30 million for these expenses, which are primarily related to opposing Propositions 33 and 34.