Equity Residential - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered diluted EPS $1.10, FFO/share $0.97, and Normalized FFO/share $1.00; rental income rose to $766.8M, up 5.4% YoY. Same-store revenue grew 2.4% YoY with occupancy at 96.1% and blended rate +1.0% amid seasonal pressure on new leases (-4.3%).
• 2025 outlook targets same-store revenue growth of 2.25%–3.25%, NFFO/share $3.90–$4.00, with H2 acceleration driven by stronger leasing and “other income” initiatives; Q1 2025 guidance is EPS $0.63–$0.67 and FFO/share $0.89–$0.93.
• Capital allocation advanced: Q4 acquisitions of 795 units for $274.3M (5.2% cap rate) and dispositions of 1,629 units for $610.1M (5.2% yield); full-year 2024 net acquisitions ~$1.6B and dispositions ~$975.6M. Dividend increased 2.6% to $2.77 annualized (Q1 payout $0.6925).
• Management highlighted coastal supply normalizing with 2026 deliveries ~30% below pre-pandemic averages and improving office-using job growth in West Coast tech markets—potential catalysts for narrative improvement in H2 2025 and into 2026.
• S&P Global consensus estimates were unavailable at the time of this analysis; versus company guidance, Q4 results were in line-to-ahead (EPS beat guidance midpoint; FFO/NFFO in line).

What Went Well and What Went Wrong

What Went Well

• Same-store performance: 2024 same-store revenues +3.0%, expenses +2.9%, NOI +3.1%; Q4 occupancy held at 96.1% with blended rate +1.0%.
• Operating excellence: “delivering same-store expense growth in 2024 of 2.9% and an average of only 3.2% over the past 5 years” (CEO) and “lowest…turnover…42.5%” (COO).
• Regional momentum: 2025 guidance expects Seattle (~4% same-store revenue) and DC to lead; New York and San Francisco close behind with potential upside if pricing power improves earlier in the year (COO).
• Portfolio optimization: nearly $2B of newer assets added in 2024 across expansion markets, funded by older coastal asset sales and long-term debt; management views this as beneficial for long-term rental growth post supply absorption (CEO).
• “Other income” initiatives: ~70 bps (~$20M) revenue tailwind expected in 2025 (connectivity, tech programs), NOI accretive despite ~$5M expense add (CFO/COO).

What Went Wrong

• Bad debt improvement slower than modeled: Q4 Bad Debt, Net held ~1.1% of same-store residential revenues, less improvement than guidance assumptions (press release).
• Expansion markets pressure: continued elevated (though declining) supply in Atlanta/Dallas/Denver yields expected negative same-store revenue in 2025 (COO).
• Q4 new lease rates negative seasonally: new lease change -4.3% portfolio-wide; concessions remain elevated in downtown San Francisco (COO).
• Non-residential drag: ~20 bps headwind to same-store revenue for 2025 due to non-repeat straight-line reinstatement from Q1 2024 (CFO).
• Interest expense headwind in 2025 from higher balances and refinancing (including $450M note due June 2025), partially offset by capital markets flexibility (CFO).

Transcript

Marty McKenna (First VP of Investor & Public Relations)

Garitana, our Chief Financial Officer. Alec Brackenridge, our Chief Investment Officer is here with us as well for the Q and A. Our earnings release and management presentation are 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. Now, I will turn the call over to Mark Burrell.

Mark Parrell (President, CEO & Trustee)

Thank you, Marty. Good morning and thank you all for joining us today to discuss our and full year 2024 results and outlook for 2025. I will start us off, then Michael Manelis, our COO, will speak to our 2024 operating performance and 2025 revenue guidance. Then Bob Garachana, our Chief Financial Officer, will cover our 2025 expense and NFFO guidance.

Then we'll go ahead and take your questions. We also posted a management presentation on our website last night with some additional detail. Before I get to the meat of my remarks, I want to spend a minute thanking my colleagues in the Los Angeles market for all they've done to support our residents and each other during this very difficult time. We are fortunate to have not had any property seriously impacted by the fires, but our teams and everyone else in LA has been through a lot. A special shout out to all the firefighters, first responders and everyone else who worked tirelessly to battle the blazes.

Now turning to 2024, we finished the year with solid same store revenue results that were a good bit better than the midpoint of what we had expected at the beginning of the year, but with slowing bad debt improvement in the leaving us at the lower end of our previously upwardly revised guidance expectations. Demand remains very good across our portfolio with levels of supply the main determinant of market performance. Before putting 2024 in the rearview mirror, I want to thank my colleagues across our 300 plus properties and at corporate who once again did a great job managing expense growth, while providing outstanding customer service. We are very proud of delivering same store expense growth in 2024 of 2.9% and delivering an average of only 3.2% same store expense growth over the past five years. Well done team.

And now moving on to 2025, while we're expecting similar annual same store revenue growth in 2025 as last year, the pace of our same store quarter over quarter revenue growth should show acceleration throughout the year with the back half of 2025 considerably better than the in contrast to the deceleration in quarterly growth we saw in 2024. In both our earnings release and in the management presentation, we provided guidance for our 2025 operations. Michael and Bob are going to provide some color on that guidance in just a minute, but I want to take a moment to talk about the economic outlook that supports these guidance expectations. Based on the third party economic projections we use, we expect office using job growth, which we see as a key driver of our business, to be higher in 2025 than in 2024, especially on the West Coast. The improvement we are seeing in our Downtown Seattle operations and beginning to see in the San Francisco market, both downtown and on the Peninsula, are consistent with that theme.

Unemployment of college graduates, the bulk of our residents is currently very low at 2.4 and we expect it to stay in that range in 2025. With the supply of housing already tight in most of our markets, we see this setup as very positive for our business. I also note that our current earnings guidance is driven by the positive signs we are seeing looking at our operating dashboards, as well as our deep knowledge of supply and demand dynamics in our markets rather than by looking at the headlines. While we certainly acknowledge that there is a higher level of uncertainty in the forward path of the economy than usual given various recent governmental actions relating to tariffs and other matters, the impact of these actions on the larger economy and our business is hard to estimate currently, will evolve over time and is not included in our guidance expectations. That said, being a strong cash flow business without foreign operations and with the Fortress balance sheet in times of heightened uncertainty is a definitive positive.

Looking at supply in our coastal established markets where we have 90% of our net operating income, we expect completions of competitive units to be similar in 2025 to 2024, but at a considerably lower level as a percentage of existing apartment inventory than in the Sunbelt markets. With some localized exceptions that Michael will discuss, we expect this coastal supply to be absorbed well in these housing starved markets. So while 2025 will be similar to 2024 in terms of established market units delivered that are competitive with our properties, overall supply levels continue to be manageable. While there continues to be a lot of conversation about declines in Sunbelt starts, we think it is at least as notable that 2024 competitive starts and our coastal footprint were about half of normal levels with 2025 starts likely to be similarly restrained. In fact, as a percentage of existing inventory, total starts in our established markets in 2024 were at rock bottom levels last seen just after the great financial crisis.

As a result, we see 2026 total deliveries in our coastal markets around 30% lower than the pre pandemic average. In sum, the supply versus demand setup is good in our coastal markets now and will likely trend even better later this year and into 2026. Turning to our expansion markets, Atlanta, Austin, Dallas and Denver, where we have about 10% of our net NOI, we expect 2025 deliveries to be lower than in 2024, but still at an elevated level. We also expect that in 2025, these markets will still be working off the supply delivered in 2024. Overall, demand remains good in our expansion markets and these high job growth markets will eventually absorb the current and incoming supply, but it will take some time to do so and progress we think will be uneven.

In a moment, Mike will go over what we are currently seeing in these markets. When we apply all this to our capital allocation strategy, it confirms to us again the wisdom of having a strategically diversified portfolio. Our goal is to own an apartment portfolio that has the highest long term total return in the sector with a focus on cash flow growth, taking into account risk and minimizing volatility. We are achieving this goal by catering to well earning renters in the 12 or so metro areas that we think have the most desirable lifestyles for this demographic and present the best balance of long term demand, supply, regulatory and resiliency opportunities and risks, and and where we can efficiently operate our properties with our industry leading people and systems. We made substantial progress towards our goal of having 20% of our NOI in our expansion markets by investing almost $2,000,000,000 in acquisitions and delivered development projects in these markets during 2024, while disposing of about $1,000,000,000 of older assets located entirely in our coastal markets.

Our portfolios in the expansion markets feature newer, well located properties with a healthy balance between suburban and urban. We have given guidance for $150,000,000,0.0 of acquisitions and $1,000,000,000 of dispositions in 2025. As you can see, we expect to fund the bulk of our acquisition activity using proceeds from dispose. We are also assuming in our guidance that we will be a net acquirer and that we will fund that net acquisition activity using debt. You should expect material net acquisition activity only if, like in 2024, where we acquired $600,000,000 using debt, the numbers support that activity.

Currently transaction activity is very light. Assuming market volatility abates, we would hope that activity would pick up. Alec Brackenridge, our Chief Investment Officer is here in the Q and A period to add color. Finally, I wish to thank Barry Altschuler, our Regulatory Affairs guru and others across the rental housing industry for doing an outstanding job advocating for pro housing solutions like less regulation and better public private partnerships to encourage more supply and against anti housing ideas like rent control. We had great success in California and across the country last quarter.

Equity Residential will continue to be a leader with its industry partners in advancing pro housing policies. While political risk remains in our markets, we have definitively seen the tide turn towards more thoughtful housing policies and a focus on quality of life and public safety in our central cities. And with that, I'll turn the call over to Michael Manelis.

Michael Manelis (EVP & COO)

Thanks, Mark, and thanks to everyone for joining us today. This morning, I will review our operating performance and our operating outlook for 2025.

In addition to our earnings release published last night, we've also published a detailed management presentation that provides additional color on the drivers of our guidance that I will refer to. We ended the year with continued healthy fundamentals and solid demand from a well employed renter population, which drove strong occupancy of 96.1% and a blended rate growth of 1%, both of which met our forecast for the quarter. I'd also like to highlight that our turnover was just 9%, bringing our full year turnover to 42.5%, which is the lowest we have reported in our thirty year history as a public company. This clearly demonstrates our success in creating remarkable resident experiences and reflects the favorable supply demand dynamics in our portfolio. On the expense side, for the full year, we have kept growth in same store operating expenses below 3% with a special call out to the relatively flat payroll growth and 2% growth in repairs and maintenance, including a 5.5% reduction in turnover expense.

This again highlights our ability to share resources across properties and minimize reliance on outsourced labor. We are pleased to report that two thirds of our properties have a shared resource model in place and we're excited about the additional opportunities that further automation and centralization provide. Moving to 2025, our same store revenue growth guidance range is 2.25% to 3.25% with an expense rate growth range of 3.5% to 4.5%. Bob will provide color on the expense guidance in a moment, but let me focus your attention on the building blocks for revenue growth as detailed on Page six of the management presentation. Our revenue midpoint assumes the following.

We start with embedded growth of 80 basis points in 2025. This is 40 basis points lower than our starting point in 2024 and at the lower end of the historical averages, but the gap is largely expected to be made up through stronger leasing activity during 2025. That strong leasing activity will be driven by continued strength in overall demand from better job growth forecasted in our markets and very manageable levels of competitive new supply, particularly in our established markets, which are 90% of the total portfolio. This is expected yield blended rate growth between 23% for the full year, which is about 60 basis points better than what we delivered for the full year 2024 with a good portion of that improvement coming from the recovery of some of our West Coast markets that I will discuss later. We also expect continued strong resident retention as a result of both the benefits of a centralized renewal process, our enhanced data and analytics insights and the high cost and low availability of owned housing in our markets.

As I said earlier, turnover in the portfolio remains the lowest that we have seen in the history of our company and we expect that trend to continue in 2025. This leads to approximately 3% residential same store revenue growth, which is identical to 2024, which is then partially offset by declines in non residential same store revenue to get to the 2.75% midpoint of our guidance range as described on Page six of the management presentation. Occupancy should hold at levels similar to last year, which at that strength will allow us to capture rate. Operating results will also benefit from our continued execution on innovation initiatives with the majority of it running through the other income line. This year, we will be focusing on our analytical efforts with data driven pricing and retention strategies, expanding automation to drive additional operating efficiencies and all the while endeavoring to ensure that we provide a great customer experience.

In 2025, we expect about 70 basis points or nearly $20,000,000 in other income growth with a large majority of it coming from initiatives that we have discussed in the past and the further rollout of our Internet connectivity and technology programs. Bob will walk through the associated expenses with that, but net net these will be additive to earnings overall. In terms of the overall market performance, Seattle and DC should lead the pack with same store revenue growth of approximately 4% and New York and San Francisco will follow very closely behind. While we did include some further recovery in Downtown Seattle and San Francisco in our guidance, both markets have the potential to outperform if we get more robust pricing power early in the year. And our expansion markets, which reflect only 10% of the total company NOI, we expect to produce negative same store revenue growth given the impact of elevated, albeit declining levels of supply that need to work through the system.

As we look at the individual markets, let's start with Los Angeles, where I would like to echo Mark's comments with tremendous gratitude to our amazing team in this market. Our guidance does not assume potential operational impacts in either revenues or in terms of cleanup expenses from the fires that I will discuss in a moment. Here's what we have included. So first, the market will see more supply than it did in 2024, but we expect the impact in our portfolio to be manageable and consistent with last year with the Mid Wilshire Koreatown submarket feeling the most competitive pressure followed by the San Fernando Valley, which will see an increase, but without significant impact to us. Our guidance assumes that the market will continue to work through delinquency and bad debt issues, which will contribute to additional revenue growth.

As I'll discuss in a moment, depending on the regulatory actions taken in LA, this improvement may happen more slowly than what is now assumed in our guidance. Physical occupancy and pricing trends started improving late last year and we modeled a continued pace of improvement, which results in our full year same store market revenue projection LA to be around 3%. But again, this may be impacted by any regulatory limits put in place in response to the fires, which brings us to the potential impact from the fires. While there has been a lot of speculation, we believe it is still too early to understand the full impact on operations. There will likely be more demand in the market as fire impacted residents seek new accommodations, especially in the two and three bedroom units, which comprise about 45% of our LA portfolio, which we have already seen in certain submarkets.

There will also likely be cleanup expenses the company incurs from the fires and various governmental actions that could negatively impact our operation. There are also likely to be twists and turns in the recovery process and governmental response. For now, we feel like the base case we outlined is our best assumption. We'll keep you posted on what happens here and anticipate that we'll have a better color on our call in April 0. Staying on the West Coast, San Diego and Orange County were some of the better performers last year.

In 2025, we expect that these markets will continue to see good demand. Job growth in both markets is expected to exceed 2024 levels and there is a general lack of housing. High homeownership costs make renting in these markets the most attractive option. Both markets are expected to see slightly more competitive new supply in 2025, but overall we would expect good performance here. In San Francisco, we are optimistic about the new mayoral administration and its commitment to improving the quality of life in the city.

Job growth expectations continue to improve and demand in the Downtown and Peninsula submarkets are strong, which should lead to additional pricing power in 2025. As I mentioned a moment ago, we have modeled some improvement in the operating conditions for the overall market of San Francisco with growth primarily coming from both the Peninsula and Downtown submarkets. A more robust recovery is certainly possible as demand and pricing improve early enough in the year. Currently, concession use remains elevated in the San Francisco market, especially in the downtown submarket, but overall improves significantly in 2024. We expect with improving occupancy, we will begin to see net effective pricing improvements in the market as rents and occupancy are increasing, which will most likely lead to a further pullback and concessions if these occupancy gains hold.

New supply forecast for 2025 in San Francisco is very similar to 2024 quantities with almost no supply in Downtown San Francisco and most of it concentrated in the South Bay where absorption has been strong. We also are feeling really good about Seattle in 2025. Despite heightened pockets of supply, particularly in the urban core and Redmond submarkets, we finished '24 in a strong position and look to have increasing pricing power resulting from continued demand as employers like Amazon bring their teams back to the office and supply begins to abate in the of this year. Quality of life issues in the city continue to improve and the city has a bounce in its step after a pretty good stretch in the doldrums. Competitive deliveries with our portfolio peaked in the and our pricing power held up during a period of time when it normally declines.

We expect Seattle to be one of our strongest revenue growth markets in 2025. Moving to the East Coast starting in Boston, with high occupancy and limited new competitive supply, this market should perform well in 2025. The market is supported by a strong employment base in finance, tech, life sciences, health and education. Overall, new deliveries will be about the same in 2025 as last year, but the majority of the deliveries will be in the suburbs, which bodes well for us given 70% of our assets are located in the urban core of Boston. Our urban assets outperformed suburban ones in 2024 and we expect that spread will be even greater in 2025.

Was a top performer in 2024 and we expect that to continue in 2025. The employment base is strong, market occupancy is high and there is almost no new competitive supply being delivered in Manhattan where we have the majority of our portfolio. Washington DC was our top performer last year and our expectations remain high for 2025. The absorption here has been very impressive considering that the market has been delivering more than 10000 units a year and will do so again in 2025. We're almost 97% occupied in the market, which is a good start to the year.

And the wild color here is what impact the new administration and its focus on both cost cutting and a return to office policy for federal employees will have on the local job market. In the expansion markets, our long term outlook remains positive as we expect to continue to see higher than average job growth in those metro areas, but our near term operating environment is challenging. We have seen stability in new lease rates and occupancy in Atlanta and Dallas the last two months. And while volatility is possible, we currently expect that new lease rates will improve as they usually do in the busy spring leasing season in these markets. In Denver, conditions today are challenging as we have some new deals in close proximity to our assets that could push the improvement to later in the year.

Even with these hoped for improvements in operating conditions, we expect same store revenue in our expansion markets to be lower in 2025 than it was in 2024. Looking at the overall company level as we sit here today, we really like our position. We're looking forward to capturing the opportunities the spring leasing season brings, which will help frame pricing power for the full year. I want to give a shout out for our amazing teams across our platform for their continued dedication to our residents and focus on delivering these results. With that, I'll turn the call over to Bob to walk through the rest of our guidance expectations for 2025.

Robert Garechana (EVP & CFO)

Thanks, Michael. With Michael having just walked through 2025 same store revenue expectations, let me finish with same store expenses, normalized FFO and provide some color on anticipated capital markets activity for 2025.

Turning to expenses. Expense management remains a core strength of EQR as demonstrated over the years and during 2024. Our 2025 guidance of 3.5% to 4.5% implies somewhat higher growth in 2025 than 2024 as outlined on Page six of the management presentation, but still reflects that strength. As you can see, the incremental growth in expenses are stemming from a couple of items. First, connectivity expenses are adding approximately $5,000,000 to expense growth as we deploy bulk WiFi in the portfolio.

As Michael mentioned, they are also adding revenue, so we will be accretive to NOI the full year. Second, we have another year of 04/21 tax abatement step ups in the New York portfolio. We are down to only a handful of properties in step up with most nearing the end of the period. As we have mentioned in the past, once fully taxed, there is an incremental income opportunity as affordable units convert to market rate in the future. Beyond those two items, same store expense growth will look relatively similar to 2024, but with a little incremental growth from utilities and payroll given the low growth in 2024, setting up a tough comparable period.

Moving to NFFO. Page eight provides some narrative around NFFO contributors outside of same store along with a bridge to the midpoint of our guidance range. This bridge can also be found in the earnings release. Beyond residential same store NOI, let me provide some color around a couple of the larger categories. First, transaction NOI.

The majority of this contribution is coming from 2024 transaction activity and our buys and sells last year. There is some impact from our assumptions in 2025, but as Mark mentioned, this will be contingent upon what market conditions look like, so that could change. Second, interest expense. The majority of the increase in interest expense is coming from increases in anticipated balances from investment activity, mostly acquisitions, with about $0,.01 of the increase also coming from refinancing of our 2025 maturity at what we expect to be a higher rate. More about that in a second.

And finally, lease up NOI. The $0,.01 contribution from lease up NOI is coming from our few consolidated lease ups. The majority of our lease ups are from unconsolidated joint ventures in our expansion markets that are encumbered with project level debt and the net income from those projects runs through the income from investments in unconsolidated entities line. Four of these unconsolidated JV development deals were completed late in 2024 and will be leasing up throughout the year. Given current leasing velocity and the cessation of capitalized interest on the loans, we do not expect these joint venture assets to contribute to NFFO growth in 2025.

We've added specific guidance on this income to the guidance page of the earnings release. Finally, let me briefly mention our anticipated capital markets activity for 2025. We have one significant maturity, which is a $4.50,000,000 dollars 3 point 3 7 5 percent note due in We would expect to refinance this note at or near the maturity, most likely with unsecured debt. We have ample liquidity and capacity under our recently expanded commercial paper program to float this payoff and be opportunistic about when exactly we refinance the maturity. All other financing activities will be dependent upon transaction activity and conditions as Mark mentioned.

Our guidance assumes $500,000,000 to $1,000,000,000 of debt issuance because we modeled being a net acquirer of $500,000,000 in our guidance. Expected debt issuance, however, will adjust as that adjusts. With that, let me turn it over to the operator to begin Q and A.

Operator (participant)

We'll take our first question from Eric Wolf with Citi.

Eric Wolfe (Director)

Hey, thanks. You mentioned that same store revenue should accelerate throughout the year. Can you just talk about how much of that is driven by other income versus improved fundamentals? And then what type of acceleration you're expecting in the second half versus first half or or where you expect to start the year versus end of the year, however you think we should think about it?

Robert Garechana (EVP & CFO)

Yes. Hey, Eric, it's Bob. But I'll start with that kind of outlining the shape of what we expect revenue to be. The shape should be such as, as you mentioned, that the acceleration of the year over year quarter over quarter growth will be higher in the back end of the year than the front end of the year. And there's two main drivers associated with that.

The first driver is really that we're starting the year with lower embedded growth than historical and a lot of the growth is coming from actual leasing activity in 2025. And so as you get to the and the which are the prime leasing seasons, you start to see that contribution coming through the quarter over quarter. And so there's a good portion of growth associated in the back end quarters there relative to the front quarters, which will be lower because of that lower embedded growth. Additionally to that, you also have the other income, which has kind of got the same shape to it. So you have the other income is a lot of it, as Michael mentioned, is the connectivity.

So you have that growth component also more weighted in the as you roll through the program of rolling out the Wi Fi piece. So from a kind of quarter over quarter perspective in same store revenue, you should see the being the lowest and a little bit lower and then it build as you see the leasing activity and as you see the other income contribute overall such that you get to a higher relative to

Eric Wolfe (Director)

Got it. That's helpful. And then you outlined some markets that you expect to improve throughout the year, I think mainly SF and Sunbelt, at least from like a blended rent perspective, maybe not from a same store revenue for Sunbelt. But can you just talk about how much better the sort of second half blended rate growth might be versus the first half? I'm just trying to understand the sort of the degree of improvement you're expecting in those markets.

Michael Manelis (EVP & COO)

Yes. Eric, this is Michael. So I mean, I think you would follow a shape right now. We gave some guidance in the release for the as to how blends will play out, which is the 1.4 to 2.2%. And I'll tell you in that equation, I mean, you've heard me talk before about the consistency in our renewal process.

So renewals are pretty much flat going month by month throughout these quarters. So I think the build as you see the year play out, you would clearly start to accelerate in the second half of the year, which the probably having the strongest, but then you would expect moderation again in that So the shape doesn't look materially different than other years. It just it's going to be elevated as you work your way through the middle of the year.

Eric Wolfe (Director)

Got it. Thank you.

Operator (participant)

We'll now take our next question from Steve Sakwa with Evercore ISI.

Steve Sakwa (Senior Managing Director & Senior Equity Research Analyst)

Yes, thanks. I know you're trying to get away from a ton of sort of KPIs on the leasing side kind of month to month and quarter to quarter. But could you just maybe provide some color on where our renewal rates are going out? I guess we were pleasantly surprised that the 5% renewal increase in the but new leases did come in, I think a touch weaker than we had expected. So maybe where are you sending out renewals today across the portfolio in the

Michael Manelis (EVP & COO)

Yes. Hey, Steve, this is Michael. So first, I just want to remind you, we do have a centralized renewal team handling our entire renewal process, including all the negotiations, which has really allowed us to execute like various strategies across the markets as we see conditions changing. Right now, we're in the process of tightening up negotiations as we start dealing with renewal months that are heading into that leasing season like March 0. We have conditions that are improving in Seattle, San Francisco, LA.

We love the current occupancy position that the portfolio is in. So for the next several months right now, the quotes that are out there in the marketplace are about a 7%. And I'd say that we would expect to achieve increases somewhere right around that 5% kind of range. We got good insights. We got a lot of confidence in the stability of this renewal performance in the portfolio right now.

Steve Sakwa (Senior Managing Director & Senior Equity Research Analyst)

Great. Thanks. And then maybe on capital deployment, I know you've got a net acquisition volume of $500,000,000 but you do have a moderately active development pipeline. I'm just curious, how does development sort of play into your thought process today? Where are yields on new projects?

And how do those development yields kind of stack up to the acquisition yields you're looking at?

Alexander Brackenridge (EVP & CIO)

Hey, Steve, it's Alec. It's a pretty uncertain market right now just to be able to even start and peg acquisition cap rate, but for the moment assume it's around a five. I can't tell you there are a lot of transactions right now because the market is pretty frozen. So you'd like to think you could build to around a 6% and I think that's the number most people are shooting for. And with rents where they are and costs not going down too much, there's been some lower costs.

But overall, it's pretty hard to get to that six for a location you really like unless it's really simple product. So what we're seeing is more stuff being built further out, more suburban, even ex urban and not really the stuff we're crazy about. So we've been really patient. We have just three starts this year and nothing geared up yet for this sorry, three starts from last year and nothing geared up for this year. But we keep looking at if we can find the right location, which would be a place where we don't think we'll be able to buy.

And the three starts last year as a reminder, we're in Suburban Boston and Suburban Seattle. That's what we would pursue. But right now it's really tough to make the numbers work on something that's appealing to us.

Steve Sakwa (Senior Managing Director & Senior Equity Research Analyst)

Great. Thanks.

Operator (participant)

We'll now take a question from John Pawlowski with Green Street.

John Pawlowski (Managing Director)

Hey, good morning. I have a follow-up question on your comments around supply likely being down 30% in 2026 relative to pre pandemic norms. I'm curious if you bifurcated that between urban and suburban. Is it fair to assume that urban is down significantly more than that 30%? And then if so, how are you just thinking about your ideal market mix right now or submarket mix between urban and suburban, given urban might have a longer runway of no supply than the suburbs?

Mark Parrell (President, CEO & Trustee)

Yes. Hey, John, it's Mark Burrell. First off, go Eagles, right? Second, I'll say to you, we agree. I think with your comment, I think that's perceptive.

On the urban side, we see a lot less being built. The high rise product you need to build to make those numbers work, frankly, don't work at all those numbers at this point. And we see a longer runway in some of the urban submarkets. And that's why we've talked a little bit about continuing to stay exposed in our legacy established markets to the urban core and in our new markets of having a presence in urban areas as well. There's deeper pools of demand in urban areas.

There's typically been more supply, but we think that dynamic is going to change. So we like being differentiated by continuing to think of the urban centers as worthy of investment, but every city varies and Alec can amplify that. There's places that are less appealing like frankly Dallas, a central city, and there's places like Midtown Atlanta that do have a lot of supply, but are much more appealing to our demographics. So we're going to continue to balance that out, but we are investing in urban areas both in our current coastal markets as well as these newest kind of expansion markets that we've been focused on.

Alexander Brackenridge (EVP & CIO)

Yes. To Mark's point, so we do distinguish between say the CBD, which sometimes people think is the only urban area with some neighborhoods that are closer and still very dense, but offer great quality of life without some of the legacy issues that we're seeing in CBDs throughout the country.

John Pawlowski (Managing Director)

Okay. I guess in terms of the capital allocation read through relative to six or twelve months ago, are you guys being are you guys becoming more open minded that your urban concentration should be higher than you expected it to be six to twelve months ago moving forward?

Mark Parrell (President, CEO & Trustee)

I'm not sure that's changed a great deal. I think it's just the balancing act. There are a few assets in the urban centers on the West Coast that we probably will sell over time because John, we're a little over concentrated in certain submarkets. But I mean, we talked about the benefits of urban concentration even when things were difficult during COVID. So I don't think our opinions changed.

We like the exposure to the urban areas. We like it now. I think you're going to see the benefit of it in our numbers in the next year or so. So I think having that diversification not being all suburban or exurban or whatnot is a good thing for us. But there's going to be markets like Dallas, whereas Alex said, we're kind of a little more distant urban and a lot more suburban.

And there's markets like New York where we're entirely urban. And I like having that toggle. I think markets have different best spots to invest in. And so yes, we feel good about our urban, but frankly, we felt good about it a year ago too.

John Pawlowski (Managing Director)

Okay. My last question, Michael, just on the DC market, I know it's really early and the news flow changes by the hour. Just curious what your local team is seeing on the ground in terms of traffic, pricing power on existing tenants or new tenants, just given the uncertainty about potential layoffs for federal employees?

Michael Manelis (EVP & COO)

Yes, it's a great question, John. So I mean, right now, I got to tell you, the DC portfolio has occupied 97.1% today. We have a pricing curve that's on par to slightly better than what you would expect for the beginning of the year. In terms of like the feedback on-site right now, we haven't really seen anything kind of flow through with renewals. I think everybody is still a little bit on edge.

And I think as I said in my prepared remarks, there's still a lot of uncertainty on the overall impact. I guess I would say to demand in terms of layoffs versus this concept of bringing people back into the office, like does that neutralize each other in the demand? So I think it's still a little bit too early, but I can tell you, I know there are people that are on angst right now in the market and we just kind of need to see how this plays out over the course of the next couple of months. But the positioning of the market and the portfolio today is really strong. And the diversification of employers is a lot better in D.

Mark Parrell (President, CEO & Trustee)

C, John, it's Mark than it used to be. I mean, there are other employers there. There's a lot by the way of defense industry related stuff, which may not be subject to the same staffing restrictions. I know some of those people weren't sent the same email that I guess was sent to the general federal workforce. So I think there are definitely ups and downs there and probably a smaller federal workforce going forward.

But in terms of the DC focused workforce, that number might end up being higher because of the defense concentration. And as Michael said, them just asking or demanding that people be in the office. Those people that are far away are not currently renters from us and maybe new renters soon for a portfolio that has very little slack in it already.

John Pawlowski (Managing Director)

Okay. Thanks for the time.

Mark Parrell (President, CEO & Trustee)

Thank you.

Operator (participant)

We'll now take our next question from Michael Goldsmith with UBS.

Michael Goldsmith (Equity Research Analyst)

Good morning. Thanks a lot for taking my question. My first question is on seasonality. It seems like this is second year in a row of maybe a weaker but with expectations of a stronger So can you talk a little bit about the factors that are influencing that? And then also within the comments that it seems like the momentum should be sustained through this year into the So what gives you confidence that the momentum can be sustained through this year, which we felt like cut the trends in the last two years? Thanks.

Michael Manelis (EVP & COO)

Yes. Hey, Michael, this is Michael. So I think from a seasonality standpoint, I would tell you the kind of played out the way we expected it to play out. I mean, you'd normally see deceleration. Clearly, we have some very seasonal markets like Boston is a great example of that where you do see that deceleration occur and then you turn the corner into Jan.

0 and you start your run into the spring with pricing and momentum building. So I think the shape of the curve for this year is not materially different, right? You're going to build up as you work your way through the spring and into kind of the fall and have stronger momentum and stronger kind of new lease change than what we experienced in 2024 because I just think the macro indicators for us tell us that we are in for a period of stronger pricing power this year than what we had last year, but that doesn't mean that we won't see deceleration in the We would expect to see some deceleration at that time just based on normal seasonality trends in the way these markets act. But the strength in the portfolio right now gives us that confidence of having this pricing power build and some of the recovery in these West Coast markets clearly are going to put us a position to to start having stronger blended rates than what we've seen in the past.

Michael Goldsmith (Equity Research Analyst)

Got it. Helpful. Second question, on the 04/28, the expense component is pretty clear, but how should we be thinking about the potential benefit to these buildings in terms of revenue as restrictions burn off? And if I can squeeze one more in as well, how much Sunbelt is entering the same store pool this year? Thanks.

Alexander Brackenridge (EVP & CIO)

Yes. Michael, it's Alec. Just on the 04/ question, it's really hard to project that because they don't turn to market until they vacate. So if someone stays in the unit a longer time, you obviously can't get to that unit sooner. They move out tomorrow and we get to it right away.

So it's hard to peg, but the upside is high because a lot of these rents are like say $1 or $1.5 a foot and they could go up to $6.07 dollars a foot. So there's some pretty dramatic increases that are potentially possible.

Robert Garechana (EVP & CFO)

Hey, Michael. And on the same store component with the Sunbelt, the 2025 same store set is not materially different than the 2024 same store set. There's a couple of assets coming in to it from the Sunbelt. The majority of our transaction activity won't hit the full year annualized same store set until 2026 because recall that you might see it in and of the quarterly set because we bought the assets like from the Blackstone portfolio and did most of our transaction activity in the back half of 2024. But until you enter the full year same store set, it won't materially change until 2026.

Mark Parrell (President, CEO & Trustee)

And just to add a little more color, Michael, a good question. In 2026, a lot of those units are going to be suburban. It just happens by coincidence as we built these balanced portfolios that we bought, for example, more in Denver in urban areas initially. Those properties are in same store. They did really, really well for us and now they're getting hurt by the supply.

So you see our numbers sort of suffer disproportionately, but the non same store pool, which is predominantly almost entirely suburban in those big three markets for us of Atlanta, Dallas and Denver, when that rolls in the same store in 2026, I think that's going to be very helpful. And I think it's going to prove out the benefit of having a balanced portfolio in kind of both parts of a market, not just all suburban, not just all urban. We will have gotten benefit through the whole cycle.

Michael Goldsmith (Equity Research Analyst)

Thank you very much.

Mark Parrell (President, CEO & Trustee)

Thank you.

Operator (participant)

We'll now take our next question from Anthony Paolone with JPMorgan.

Anthony Paolone (Executive Director)

Yes, thanks. I would like to shift over first to acquisition market. Can you maybe give us a sense as to where private market is right now in terms of IRRs, where thinking is for NOI growth the next few years and just how you're seeing liquidity out there?

Alexander Brackenridge (EVP & CIO)

Hi, it's Alex. There is a lot of interest in the multifamily sector. I was out at NMHC in Las Vegas and everyone's eager to buy, but the market is really frozen right now. So people would like to buy at around five. I think they probably project that to be a 7.5% ish IRR on their numbers.

But with a 4.5%, ten % year, I'm not sure that they're ready to pull the trigger plus all the other uncertainty in the world. So right now the market's got a bit of a standstill. But with all this capital out there plus a lot of these deals that aren't capitalized for the long run and we're getting the sense that lenders are more likely to pull the plug on those and stop extending them. There'll be more supply available and hopefully in a quarter or two, I'll be able to give you a more fulsome answer that would have some examples because we expect that to happen, the market to pick up. But as it stands today, it's really theoretical because it's very, very little activity.

Anthony Paolone (Executive Director)

Okay. Thanks. And then just question for Bob, you talked about the drag in JVFFO from the development stabilizing there. Can you give us some sense as to what the difference in FFO is likely to be when those projects stabilize versus what's in your 2025 guidance?

Robert Garechana (EVP & CFO)

Yes. Let me talk about kind of how to think about that as opposed to necessarily giving a specific twenty six year over year. So there's two drivers, right? There's the drag from just the lease up process. Number one is just the NOI, right?

So when you're leasing up and you typically incur the operating expenses before you get the revenue as you build occupancy that I think we're familiar with. So by the end of this year, from an NOI perspective, these assets will be accretive, right? So they will have turned to be NOI positive. They will start they will continue to be the ramp up. You'll be over that component.

They may not be FFO accretive because they have construction loans on them and those construction loans are at 6.5% rate, so they won't have gotten to the yield as we there yet, right? And so that's where you're seeing that cessation of the cap interest and the NOI kind of two cash flow streams line up. When you think about getting to 2026, there's two things to keep in mind. Number one, you'll have the positive that they will have stabilized and you'll have probably all four quarters being stabilized or close to stabilized from the NOI standpoint. Number two, we're also at the buy sell component.

So we'll likely be able to exercise with our JV partners a recap of the ventures and put what I would say better debt on or no debt on if we're the acquirer in that process. And therefore, they will be much more accretive than what they were this year.

Anthony Paolone (Executive Director)

Okay. Thank you.

Operator (participant)

We'll now take our question from Jamie Feldman with Wells Fargo.

Jamie Feldman (Managing Director, Head of REIT Research)

Great. Thank you. I just want to start with the same store revenue build. So can you talk more about the non residential piece to the guidance? What's in there?

And then I guess just bigger picture, what do you think I guess for Bob, what do you think moves your guidance the most? I think you came out 2% below the midpoint of the Street. Where is the most upside or downside or easiest upside or downside to your numbers on FFO?

Robert Garechana (EVP & CFO)

Yes. So let me start on the non residential piece. So just to remind everyone, non residential is about 4% of the aggregate kind of portfolio from a revenue standpoint. So it's not a huge component of the business and it mostly consists of half of it is, I'd call it, third party parking and the other half of it is street level retail that acts as an amenity to the space. The 20 basis points drag, some of you may recall that in the under the accounting rules, we recognized because the tenants became more collectible and we'd previously written off the straight line leases, we actually reinstated the straight line on a number of those assets.

And therefore, we got a $450,000,0.0 ish kind of pickup overall to revenue. That is was a one time item that happened in that's not going to happen or that's not going to happen again. And so that's that drag overall as it relates to the non residential piece. Otherwise, the business is largely performing the way you would expect those two lines of business to perform. As it relates to guidance, we give you a guidance range because there are a variable series of outcomes that could occur.

Obviously, within the same store portfolio depending on how the leasing because we're so dependent on the leasing season this year and our outlook looks like the leasing season. Michael mentioned some of the items that could put you on the higher end of the guidance range from same store. It's Seattle, San Francisco performed better. If you get a bigger pickup, that could move same store. And same store is the largest driver to NFFO in the aggregate by far.

It is the core business that makes up the vast majority of that. All the other items I would tell you are largely noise. We could do a little better in refinancing. We could do a little bit better in overhead, but those are just marginal components. It really is the growth engine of the business really is the core portfolio.

Jamie Feldman (Managing Director, Head of REIT Research)

Okay. Thank you for that. And then, I mean, the headlines have been fast and furious since the inauguration. So I guess just to get inside your boardroom and your C suite, I mean, what is your team talking about the most in terms of what could be good for the business, what could be bad for the business over the next four years or maybe two years? And then if you could get more granular on by market that would be interesting too.

Mark Parrell (President, CEO & Trustee)

Well, it's Mark. I'm going to start and maybe others here will contribute to that. I mean, the new administration is in its very early innings. There's certainly been a lot going on, but we're only a few weeks into it. The Congress has only been convened for a little longer than that.

So it is a little bit hard to tell. I want to make a comment though about how we think about it because there is a little bit of a bifurcation here. We've been through these periods of heightened uncertainty. We have no idea, I'm not sure anyone knows for sure what all these actions are going to do to economic growth, what they're going to do to housing demand, I mean, all that remains to be seen, but we need to focus on our dashboards. So we say it internally, focus on your dashboards, not on the headlines.

Michael and his team's dashboards across our 300 properties are busy watching micro demand trends and they feel good. Those dashboards, buy and large, are green. That's the optimism you hear your management team reflect and we're going to run the business based on what we see there. On the capital allocation side for me, Alex, the rest of us in the Board, on the refinancing side for Bob, I mean, I think this kind of situation bespeak some caution. I certainly think there's a fair bit of uncertainty.

Uncertainty can mean opportunity when you're one of the best capitalized guys in the space like we are. So I would say I'm not sure market by market is that helpful, but I would say as as it relates to the federal government and whatever it ends up doing, we're prepared for that we think as much as we can be. We are not directly impacted by things like tariffs because we aren't predominantly housing people in the manufacturing area or the trade area. We are part of the bigger economy for sure. But I also make a comment which I kind of alluded to in my remarks.

It's pretty good to be in a business with that's fundamental, that has no foreign operations, that is got strong cash flow and a good dividend in a time of uncertainty. My guess is companies like ours will be better valued by The Street in the next sort of uncertain period of time than maybe more speculative firms have of late. So again, we're looking at all those things and like you, we'll see what happens. As for local government, I mean, the big win in California was great and we think we did a great job there as I said in our remarks in making the case to the people. These other states are really important regulatory wise, places like the state of Washington will be focus points.

But policy wise, I think it's the federal show and we'll see what kind of comes next.

Jamie Feldman (Managing Director, Head of REIT Research)

Thank you.

Operator (participant)

We'll now move to our next caller who is Julian Blumen with Goldman Sachs.

Julien Blouin (VP)

Hi. Thank you. Yes, just wondering in LA, how you're thinking about the probability of those rent freezes and eviction moratorium proposals passing? I don't know if there's sort of stuff you're hearing from your teams on the ground that can maybe sort of give us an indication.

Mark Parrell (President, CEO & Trustee)

Yes. Thanks for your question. Appreciate that. You got to start off whenever you talk about the LA fires, the huge level of empathy we have for our colleagues in that market, for our residents, for the whole community. I mean, they've been through a lot and it's been a real tough process.

We think we've been a really supportive and responsible corporate community participant. We've been supporting charities in that market that are working on relief efforts. We've been supporting our residents and our employees, including being really thoughtful about rents even before the governor put his anti gouging order, which by the way covers goods and services, not just rent into place. So we think we've been very thoughtful about those sort of things. We think these ideas, one of which is a sort of a pretty broad eviction moratorium that's being considered, are just terrible ideas.

This market continues to recover from the three year plus COVID eviction moratorium, which was broad based and not well policed and really caused a lot of disruption and even worse for LA, which desperately needs a ton of housing investment to rebuild and needs it to just house the people that even before the fires didn't have enough housing for. This is really discouraging. This is the consideration of these sort of anti housing measures like eviction moratoriums again, further the reputation LA has of being anti business and anti housing and it pushes capital away. So that's the argument we're making with our local associations. Like I said, I think there's more effective ways to do this.

There's a lot of relief money the federal government, state have, I understand. If there's folks that need help specifically on rent, I'm sure that mechanics can be created to be helpful there. But some sort of broad based sort of rule in an area that large just makes very little sense to us. And the same goes for any rent control besides what the governor put out there on the anti gouging side. It's just again, we and others have been pretty responsible.

If you want to encourage housing production, you have to send the right price signals. And I think more and more regulation is not the signal. We're so encouraged about Seattle and San Francisco. They're doing so much better being pro business and pro housing. And we just hope LA comes along.

That market is still not there on the government side and we're going to continue to advocate for it to turn.

Julien Blouin (VP)

Thank you. That's really helpful. And I guess as a second one, sorry if I missed it, but did you provide Jan. 0 new lease rate growth in Blend? Or is there a sort of can you give us a sense of where they landed relative to the 1.4% to 2.2% range for the Blend?

Michael Manelis (EVP & COO)

Hey, Joy, it's Michael. So, I think I've explained this in the past that these metrics for best deals like over longer period of times versus the standalone months, especially given the small quantity. So you didn't miss it, because I haven't said it. What I will tell you is that we are seeing sequential improvement, which is what you would expect in the month of Jan. 0.

And based on this full year expectation of 2% to 3% blended rate growth, We anticipate the is going to come in between the 1.42.2% that we included in the press release. As I mentioned last quarter, these stats have a lot of variability in them and the quantity of transactions and either new lease or renewals can impact the reported blended rates in any given quarter or even a month. So we always have these various puts and takes in our revenue model and the new lease change is only one of these variables in the equation that happens to be very dependent upon who moves out, which is why you've seen a shift towards providing ranges of blended rate results by quarter. And I guess I would just stop, but the came in exactly where we thought it would be. And I think right now when we're looking at the dashboards and seeing what we think, we have a lot of confidence in that range that we put out there.

Julien Blouin (VP)

Okay, great. Thank you so much.

Operator (participant)

We'll now move on to John Kim with BMO Capital Markets.

John Kim (Managing Director - US Real Estate)

Thank you. That's LA, I know you want to be conservative and there's maybe it's too early to come out with any guidance impact, but you did mention that you expect occupancy or demand to increase for your larger unit. And I was wondering how much of that you've already seen in Jan. 0, if you could provide possibly an occupancy number for LA and Orange County in Jan. 0.

Michael Manelis (EVP & COO)

Hey John, this is Michael. So I guess I want to say too, in the right, we actually felt better. Like you heard me say that even on the last call that we started to see this improvement. We started to see the improvement in demand that allowed us to backfill. So the occupancy for the I think, picked up to like 95.8%.

We originally modeled this market to have additional improvement, both with some rate recovery and additional occupancy gains. And in the month of Jan. 0 right now, I would say we're seeing some of that incremental improvement. Specific to the fires and specific to my comment I had in the prepared remarks, 45% of our portfolio is two and three bedrooms. We initially saw kind of that spike in demand for that type of unit, really hyper focused in three submarkets Ventura County, Glendale Pasadena and West LA.

And both Ventura and Glendale are very small. We only have a few assets in those submarkets. So we did see some of this incremental demand, but it's not like you see this kind of widespread kind of increase coming across the entire broader market. So I think I just want to stand back and just say, our base case still kind of holds. We do believe this market is ripe for improvement.

We saw some of that happening in the I think there will be some incremental play with the occupancy in the market, but I'm not sure at this point we have enough confidence to say that it's like a significant shift to the underlying base case that we put out there.

John Kim (Managing Director - US Real Estate)

Yes. I'm just curious on the timing. I would have thought that the spike, if there were any, would have already occurred since people are displaced. But is it because people have been displaced and went to temporary housing or?

Michael Manelis (EVP & COO)

Yes. I mean, I think part of this is geography, like where do they get displaced? Are these families that had children that were in schools that need to stay close? So I think a lot of this is the geography, which is if you think about the three submarkets I laid out, we're not surprised that we saw that initial demand. And there's no doubt in those three submarkets, we clearly saw an increase in demand for two and three bedrooms over the course of two to three weeks following these fires.

So I just think right now we're still trying to see how does all of this stuff settle out and where do people really kind of want to live longer term. And that's kind of what we're focused on this broader demand in the market.

John Kim (Managing Director - US Real Estate)

Okay. My second question is on your blended lease growth guidance of 2.5%. If you could break that out between new and renewal, it would seem to apply if you have renewals of 5% that new would be flattish. And I'm wondering just given the market rental growth, why new lease growth wouldn't be higher?

Michael Manelis (EVP & COO)

I think it's really just I mean, so you're not off with kind of that underlying assumption that's one way to get to that blended rate growth of 2.5%. Yes, I think what you see is it's very common. Again, we have these data points going all the way back to 02/6. We understand how these market seasonality components play into both new lease renewals and pricing trend. It is not uncommon for us to see negative new lease in the negative new lease in the even that then put some of that downward pressure into that blended.

So you're right that at the end of the year, you may walk away and have a new lease rate kind of growth net effective at zero. But I think some of these markets are also positioned right now where you could see an additional pullback in concession. So maybe some of that net effective ticks up a little bit, but we're not saying that we're not going to see normal seasonal trends play out.

Mark Parrell (President, CEO & Trustee)

There was a prior question about where the opportunity lies in our numbers and I think you've done a good job of saying where it is. I mean, it's new lease growth.

It won't totally defy seasonality, but if we're reporting better numbers on new lease through the year, even if the is negative, but the second and third are more positive than we think, that's going to be the way early enough in the year where the numbers will move around to the good.

John Kim (Managing Director - US Real Estate)

Got it. Thank you.

Mark Parrell (President, CEO & Trustee)

Thank you.

Operator (participant)

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

Haendel St. Juste (Managing Director)

Hey guys, good, I guess, good afternoon. I'm hoping to get a bit more color on some of those blended run expectations by region maybe. I guess most of us assume that East Coast blend should be better than West Coast and Sunbelt will lag, but I'm hoping to get a bit more color on perhaps the range or a sense of the expectation for blends by region? Thanks.

Michael Manelis (EVP & COO)

Yes. Hey, Anil, it's Michael. So I mean, I think what you should think about is the West Coast recovery is going to drive improving blends in the West Coast markets, all of the West Coast markets, even including the Southern California portfolio. I think we're going to continue to see strength in the East Coast markets. So maybe similar kind of blends than what you saw this year.

And then in the expansion markets, you kind of see a little bit of this stability right now for us in Atlanta and Dallas. And my hope is that as we kind of work our way towards the spring season, you start to see either rates improving or concessions falling back that then show you not only stability in blends, but a little bit of this path of recovery of blends that sets you up great for 2026.

Haendel St. Juste (Managing Director)

Okay. That's helpful. And on the subject of concessions, can you talk a little bit about where concessions are today in your San Fran and Seattle portfolios and where we or maybe where you'd expect them to trend over the next couple of quarters and how much of a tailwind that could be into the back half of the year?

Michael Manelis (EVP & COO)

Yes. So I mean, I think on the concession use overall, right, the came in exactly kind of where we thought it would be. We lean into this occupancy during the slower periods of time. We saw significant reductions in San Francisco while holding the solid occupancy of 96%.

And then Seattle saw 100 basis point improvement in occupancy, but we had similar concessions there to the So I think as you think about concessions in the marketplace right now, specifically in those two markets, it's still kind of elevated. San Francisco is still a concessionary market, especially that downtown. But I think what we're looking at right now is total revenue, because if you have the demand and you have the occupancy, you could see base rents start ticking up in those markets, which is what we've kind of been doing, even though the concessions kind of stay neutral. Our expectations as we work through this year is that the concession use will start to kind of moderate. We did model for fewer concessions in 2025 than we used in 2024.

And I think we see some of the strength right now in the positioning of the portfolio that gives us confidence that that can play out.

Haendel St. Juste (Managing Director)

That's helpful. And if I could just ask about the same store expense guide. You put out the range out there, we appreciate that, but any details perhaps on the

Eric Wolfe (Director)

buildup for items

Haendel St. Juste (Managing Director)

including taxes, insurance, R and M, so maybe some color on the components? Thanks.

Robert Garechana (EVP & CFO)

Yes. Hey, Haendel, it's Bob. Page six gives you a little bit of the contribution to growth overall. But, so ex kind of the two called out items, which are the connectivity expense and the real estate tax expense. I think the two biggest callouts and I mentioned them in terms of like growth that is dissimilar or maybe greater than what you saw in 2024 would be utilities.

Utilities is one of them that you're just seeing higher commodity prices, continued pressure and we also frankly had a really good year in 2024. So utilities is probably growing in the more mid single digits than kind of lower single digits. So that will contribute to growth more in 2025 than it did in 2024. Same thing with repairs and maintenance. Repairs and maintenance, the headline number will look really big because wage pressure and some typical stuff.

And then payroll, we model to be more like a typical 3% range. And we've had we've had phenomenal payroll experience over multiple years, but last year 2024 in particular where it was flat. So those are probably the main category line items. I know people are typically interested in insurance because insurance, although a small category, has been growing really fast. We did model that we expect it to be, call it, high single digits as opposed to low double digits.

So some improvement in that markets we don't renew until March 0.

Mark Parrell (President, CEO & Trustee)

I'm just going to add some color on insurance here for a minute because we have a unique perspective to share. Our risk management team just happened to be in London meeting with our reinsurers and some of our insurance carriers just after the worst of the fires in LA. And so we had the opportunity to ask them how the market felt to them and what might happen with commercial renewals. And their response was they didn't expect much of an impact and that they had capacity and they had had good financial results lately. And so we are feeling optimistic about where we may end up, including thinking you could get close to flat on this renewal or somewhere in that range.

And I say all that because the fires appear not to have reached reinsurers at their level and their experiences lately post some of the earth the big increases after the hurricanes is that they've built up reserves and there is more capacity in the insurance market. So again, we're feeling optimistic about that renewal as Bob said that occurs for property for us in March 0. But some early indications from our reinsurers and some of our primary insurers are they're in pretty good position that the fires in Los Angeles were terrible, but probably won't affect that part of the insurance market and us very much.

Haendel St. Juste (Managing Director)

Great. Appreciate the color guys.

Operator (participant)

We'll now take our questions from Brad Heffern with RBC.

Brad Heffern (Director)

Yes. Hey, thanks everybody. One thing that hasn't come up in the political discussion so far as immigration, obviously just as many unknowns there as in the other things. But how much of an impact do you think that could potentially have on the business and how would you view it differently between the expansion markets and the legacy portfolio?

Michael Manelis (EVP & COO)

So, hey, Brad, this is Michael. Maybe I'll start and somebody else can weigh in. So I think from the operation standpoint, there's actually two areas to think about when we look at what's going on with immigration. First is on the resident side of the business, right, in terms of are you seeing kind of less demand from people coming in from foreign countries or are you seeing lease breaks or people leaving you due to kind of deportation or immigration risks. And honestly, right now, we haven't seen any of that.

I mean, the absolute counts of transactions for us with foreign activity is really low in the but both from the move ins and the move outs, they're trending in line with our historical norms. The other part of the business that we're watching really closely, it relates to this contract service providers and whether or not they're going to be put in a position where they're not going to be able to provide services to us or try to increase rates. So right now, we have not heard anything of any issues impacting our vendors or their ability to continue to provide services to us. So from the operations standpoint, it still feels like it's just too early to tell what impact that this could have. And I think when we look at all of this, even inside of our vendor pool and inside of our resident base, these are just such small percentages of the total population that we deal with, whether that's the vendor population or within our renter base.

In the renter side of the world, foreign move ins are like 2% to 3% of our move ins. So it's just not a significant kind of quantity for us to be overly concerned about.

Brad Heffern (Director)

Okay, got it. Thanks for that. And then on the West Coast tech markets, can you just give your base case for market rent growth in those markets for 2025? And then you've talked about the potential for outperformance, any sort of scale as to what that outperformance could look like would be great as well?

Michael Manelis (EVP & COO)

Yes. Well, I think I said in my prepared remarks, Seattle is projected right now to be the strongest revenue growth, which is makes me very proud to say that because it's nothing we've been able to say for many years now. But that is projected to have revenue growth call it around 4% for the year, which would be some of the best revenue would be the highest revenue growth that we have in the portfolio. San Francisco is a little bit less on that. So it's probably more like in the mid three range.

But again, that's a pretty solid number coming off of a 1.5% growth that we saw in 2024. So in terms of like the outperformance, it really comes down to the strength that Mark just mentioned a little bit earlier. When do we see this pricing power strength? How early in the leasing season? How many leases can we capture at that to have it translate into revenue growth for 2025?

So there's two plays. The biggest drivers are occupancy and rate. And if you're going to get the rate, it's got to be early in the year for it to really make a big difference in the full year revenue guidance.

Brad Heffern (Director)

Okay. Appreciate it. Thanks.

Operator (participant)

We'll now move to Jeff Spector with Bank of America.

Jeffrey Spector (Managing Director)

Great. Thank you. Can you elaborate on your comment that you expect record retention to stay record low turnover to stay in '25?

Michael Manelis (EVP & COO)

Yes. This is Michael, Jeff. So thanks for that. We have actually seen this now for two years in a row. And I think part of this is the housing equation or the move outs to buy home are at record lows.

We don't really see anything kind of in the immediate future to suggest that that's going to be materially different for us in 2025. Even if you saw like mortgage rates contract a lot, that would probably mean that values and houses go up. So we don't really see this being like a light switch impact that's going to change. We also see this improvement in office using job growth. So therefore, on the demand side of the equation, we're not overly concerned about seeing lease breaks from people losing their jobs.

So all of the macro drivers in this reported turnover number, the reasons for move out, we just don't see anything telling us that to expect any significant changes this year. And we're really focused. We get so many great data points. It's like 200000 data points from our customers every year. We're hyper focused on making sure we are delivering a seamless exceptional customer experience to our residents.

And I think that's showing up in these turnover numbers.

Jeffrey Spector (Managing Director)

Great. Thank you. And then one follow-up on the urban conversation. Are you looking into any of the office to resi conversions as an opportunity for your company?

Alexander Brackenridge (EVP & CIO)

Hey, Jeff, it's Alec. We've got a lot of experience owning buildings that have been converted from office to residential and also seen how other people have gone through that process and it's a tough process. We wouldn't say no for sure. We look at any opportunity, but generally speaking, they take longer, cost more and come out with a less attractive property project than people think they will. So, we go in completely eyes wide open.

I don't think it's going to be a huge part of our development pipeline. And I also think it's going to be hard in a lot of cases to have it be a meaningful contributor to supply. Even in New York, where they got a specific tax abatement program geared towards these conversions, it's really hard to make the numbers work. And maybe there'll be a number of 2000, three thousand over time that get developed and maybe that normalizes to that kind of 2000 units a year over time. But in a big city like Manhattan, that's just not going to materially impact us.

And most of the locations aren't competitive with us. They're either all the way downtown where we only have one asset or they're in parts of Midtown that aren't competitive residential locations.

Jeffrey Spector (Managing Director)

Great. Thank you. Maybe if

I could sneak in just one more. Can you provide a quick preview on what you plan to discuss at the Investor Day? Thank you.

Mark Parrell (President, CEO & Trustee)

Jeff, it's Mark. Well, I don't want to ruin it. I think we'll ruin it. I think the focus is going to be on the strategy, both on the capital allocation and operations side. It also frankly gives us an opportunity to show off a broader array of folks that are on the team.

We've got an exceptional team here at Equity. So, you'll have to wait and see, but we're really looking forward to talking to everyone in a few weeks.

Jeffrey Spector (Managing Director)

Great. Thank you.

Operator (participant)

We'll now move to Rich Hightower with Barclays.

Rich Hightower (Managing Director)

Hey, good afternoon guys. I want to go back I apologize, I want to go back to get a clarifying response. I think Steve asked a question about renewals and asking rents kind of for the springtime. I think you said asking seven should achieve five, but did that apply just to San Francisco, Seattle and LA or was that for the whole portfolio?

Michael Manelis (EVP & COO)

Hey, Rich, it's Michael. No, that's the whole portfolio.

Rich Hightower (Managing Director)

That's the whole portfolio. Okay, great. And then I guess my real question, I didn't want to waste one on that, but I think as you think about the progression of improvement in the Sunbelt, specifically your expansion markets over the course of the year, curious if you want to take a wager on when new lease growth inflects positive in those markets generally at what point in the year if it does?

Mark Parrell (President, CEO & Trustee)

Well, I think that depends, it's Mark as well on the lease that's being replaced. I guess I'm not willing to hazard that on any specific and every market's different. I mean, we feel better about some parts of our portfolio and the three markets we're really in, the two big Sunbelt markets of Atlanta and Dallas and Denver. So I don't really have an estimate. And by the way, it could go positive in the and go negative again and likely would in the So I think the second derivative I know is really important to the Street, but it's just going to be uneven.

It's going to get a little better and then it's going to get worse. And if you have interruptions in job growth, it will be really problematic. So, I don't think this team is willing to put real money on that bet. But I think we'll all feel a little better about all the Sunbelt markets, particularly ours in the I think you're going to see good demand. You have a lot of supply, a lot of that supply happens to be front end loaded, but that's okay because there's a lot of demand in the middle of the year.

So I think there'll be some better sentiment. I just don't think it's going to translate into better cash flow growth for quite some time as we've talked on prior calls about how long it takes to redo the whole rent roll and take those numbers up and that's why it's more of a 26 and even for some markets it might be a 27 outcome in terms of having better same store revenue growth.

Rich Hightower (Managing Director)

All right. Very helpful. Thanks, Mark.

Mark Parrell (President, CEO & Trustee)

Thanks, Rich.

Operator (participant)

We'll now move to Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb (Managing Director)

Good morning. Morning out there. I think you guys are still an hour behind. So two questions. First, Mark, just big picture, obviously change to the administration, their policy on business regulation versus the prior.

You had that late FTC fee income just days before the inauguration. There's the continuing federal on RealPage. From a federal level, do you guys have any sense update on any shift in how DOJ or FTC is looking at these? Is it still continuing on or is there a sense that they may be more constructive and amenable on these? Any update?

Mark Parrell (President, CEO & Trustee)

Yes. Thanks, Alex. I'll start by saying we're not in that Greystar case. That's the FTC fee case that came out, like you said, a couple of weeks ago just before the change in administration. So I don't really know anything about that case besides what's in the paper.

I certainly think the focus that the administration has said about supply and maybe making federal land available. I'm not sure that's desirable that land is to where people want to live, but those supply solutions, Alex, are much from our point of view much more effective than some of the other regulatory efforts. But they just haven't done much and they obviously have a lot of things going on and I'm not sure we're top of their list. I will put one thing on your radar to consider. There has been some conversation at the federal level about returning the GSEs, Fannie Mae and Freddie Mac to more private ownership from their current mostly federal control.

I don't know how that would happen exactly. There's a lot of complexity to that, but I think there is some push. I think that's worth watching at the federal level. To be honest, I think most of the regulatory issues and opportunities we have are at the local level and at the state level, but the feds in their control of the real estate finance world through the GSEs is a pretty material thing and we got to all keep track of that and see how that unfolds.

Alexander Goldfarb (Managing Director)

And then Mark, that's a perfect segue to my second question. You guys were just at NMHC and as the market the transaction market continues to thaw, are you seeing any pricing differences setting out Sunbelt versus Coastal Meeting as people understand the regulatory changes and some of these recent local regulatory aviation efforts? Is there pricing differences that you're now seeing markets trading 50 bps wide or 75 bps wide or anything that's discernible that prices in some of these different risks that you guys have been articulating and others in the industry as well? Or is pricing pretty tight regardless and it's not really factoring in some of the issues that are out there?

Alexander Brackenridge (EVP & CIO)

Hey, Alex, it's Alex. There is such broad interest in multifamily housing that different investors are different interested in different parts of the country for different reasons. And you certainly see even in a place like Austin, which got all the supply, there's still people who are interested in paying what I think are very, very aggressive cap rates. But you also see it in the coastal markets, a return to interest in places like San Francisco, which last couple of years, we just hadn't heard many people that wanted to buy there and now we hear a lot. So the whole market is benefiting from multifamily being a favorite asset class.

Mark Parrell (President, CEO & Trustee)

Yes. And I'd say it's more like just what markets are open for business, Alex. And as Alex said a moment ago, we think San Francisco, by that we're specifically talking about downtown and the more urbanized area of the Peninsula, we think is open business and there'll be transactions there. We think there'll be larger scale transactions in Downtown Central Seattle. I would call out Los Angeles is still a market that probably doesn't have that, especially Central, Downtown Los Angeles that developed a level of interest institutionally.

But again, we're hopeful some of this regulatory stuff. So as the Mayor of San Francisco, boy energetic guy is out there doing his thing and Seattle does some constructive stuff. We bet you those markets will continue to improve and will support better cap rates and more investor interest over time. They have probably more growth in them. So my guess is they should at some point have lower cap rates and our model for that is New York.

I mean just New York was kind of given up for dead then it came all the way back and I think we have record low cap rates in New York relative to anywhere else if we were willing to sell any of our good Manhattan assets there. So we've got to see that play through the year, but that's our general sense.

Alexander Goldfarb (Managing Director)

Thank you, Mark.

Mark Parrell (President, CEO & Trustee)

Thanks, Alex.

Operator (participant)

We'll now move to Adam Kramer with Morgan Stanley.

Adam Kramer (Analyst)

Hey guys, I'll keep it quick here with just one. Just wanted to ask about the comments, I think pretty early in the call around office using job growth. I think you're expecting to be higher in 2025. I know you kind of mentioned West Coast as being driver there, but just wondering if you could add any more detail. I think that may have come as a little bit of a surprise, maybe at least to me.

So maybe just kind of what's driving that expectation from an office using job growth perspective? And I guess in the other markets, right, New York, Boston, DC, what are the expectations there?

Mark Parrell (President, CEO & Trustee)

Yes. So it's Mark. I'm going to start and maybe my colleagues will jump in here. So we generally use Moody's analytics. We look at it and again, we also again look at our dashboards and see what our people feel.

And there was some terrific tech hiring, maybe over hiring during the pandemic. And then you saw that kind of turn negative because a lot of those employment clusters of higher wage jobs are related to the information services sector or professional and business services. But when we talk to economists, we talk to people on the ground, it feels better to us. It feels like there will be good job growth and we just look at the job boards in those markets. So that's what we're basing that assumption on in San Francisco and Seattle and elsewhere on the job side.

I will point out in the Dec. 0 government numbers, you saw an improvement in professional and business services you hadn't seen in a while. You saw information sector go positive when it had been negative for a while. So you started to see in the numbers nationally some improvement in those office using jobs late in 2024 and we hope that kind of powers through 2025 and certainly San Francisco and Seattle I think would be beneficiaries of that from what we're thinking.

Operator (participant)

We'll now move to Alex Kim with Zelman and Associates.

Alexander Kim (Equity Research Associate)

Hi, guys. Thanks for taking my question. Hope that the team had a productive trip out to NMAC last week and great to see and hear the optimism surrounding the multifamily industry. There was some commentary at the conference about recently built assets that should have sold by now based on like traditional merchant build timelines and that could be unlocked in 2025. I was wondering if there could be any upside to your target $150,000,000,0.0 in acquisition volume this year?

Alexander Brackenridge (EVP & CIO)

Hi, Alex, it's Alex. Yes, we certainly want to be optimistic and hope so. And I think we're really, really well positioned to move quickly. As we showed last year, the year started out slowly, but we did $150,000,000,0.0 in the alone. So we have a machine here that can amp up very quickly and we've showed that we will do what we say we're going to do and perform in a way that many others frankly can't because they don't have the same access to capital that we do.

So we're excited to see those opportunities and I did allude to that earlier. I think it is true what you heard that these recently built assets were not financed for the long run and we're excited to see them come to the market.

Alexander Kim (Equity Research Associate)

Great. Thanks. And I know the call is going along and I appreciate y'all sticking around. The strategy so far has been rotating into newer vintage properties in your expansion markets. Are there any additional markets that you're looking into at the moment?

Mark Parrell (President, CEO & Trustee)

Our focus is really on the three, Atlanta, Dallas and Denver. There are other markets we'd consider that we've mentioned on occasion and we've talked to our board about that share those same kind of attributes. But right now, the primary focus of those three markets. Austin is on the list. We have three properties there.

It's just the supply pictures were just really tough and there may be a year or so of delay before we kind of reengage in that market. But no, there's another market for us to announce on this call.

Alexander Kim (Equity Research Associate)

Got it. Thanks for the time.

Mark Parrell (President, CEO & Trustee)

Thank you.

Operator (participant)

We'll take our next question from Linda Tite with Jefferies.

Linda Tsai (Senior Analyst)

Hi. Thanks for taking my question. Just a quick one. In terms of your favorable view towards Seattle and D. C, the 4% revenue expectation, How does the embedded growth for these two markets compare to the 80 bps for your overall portfolio?

Robert Garechana (EVP & CFO)

Hey, Linda, it's Bob. I'll start and maybe Michael can add. Directionally, the embedded in D. C. Is actually really strong.

So you had a really strong leasing performance and you can see that from the funded rate. So it's probably a little bit higher than the 80 basis points. Seattle is probably more like the average or slightly below the average because we had kind of that recovery experience in 2024. Rule of thumb, I always think about is kind of taking your blends. This math doesn't perfectly work, but taking your blends from the prior year, dividing them by two and that's kind of roughly your embedded.

So that can give you a directional sense, but I'd say directionally starting with a really solid embedded, that's the driver of growth in D. C. The Seattle story is more starting with an okay embedded, but it's really more the leasing activity in the current year and the occupancy gain that's going to drive the revenue growth.

Linda Tsai (Senior Analyst)

Could you expand that to New York and San Fran too?

Robert Garechana (EVP & CFO)

New York probably looks more similar to DC, where you had the really strong leasing season and San Francisco probably looks more similar to Seattle. They probably align they happen to be on the same coast, but they also fundamentally probably more align with what I talked about relatively.

Operator (participant)

Thank you. We'll now take a question from Tayo Okusanya with Deutsche Bank.

Omotayo Okusanya (Managing Director)

Yes, good afternoon. Just a quick one for me. In regards to the 2025 transaction assumption and the transaction dilution of negative 25 basis points, wondering if you could talk a little bit to that just around the comfort of doing diluted deals at least in the first year and how we should kind of think about the deals ultimately breaking even and actually adding shareholder value over time?

Mark Parrell (President, CEO & Trustee)

I'm going to add a comment and Alex may add. So one of the things to think about here is we're trying to give you numbers for the model and NFFO is obviously before CapEx. A lot of these deals that we're selling are, as Alex has commented many a time, considerably older and have a lot more CapEx, especially in the near term that we don't believe in, we'll get the return we need. So on an AFFO basis or in any sort of adjusted IRR basis, you're doing better by selling these assets. That's how we pick them.

In terms of where those lines cross, it could be a year or two, but I would say in a cash flow basis, you may be advantaged immediately by selling an asset that really needs a renovation or a lot of common area work that we frankly don't believe in.

Alexander Brackenridge (EVP & CIO)

Yes. Just to give an example, last year, the average property that we bought was five years old and what we sold was 35 years old.

Omotayo Okusanya (Managing Director)

Great. Thank you.

Operator (participant)

Our next question will come from Nick Yolico with Squaresha Bank.

Daniel Tricarico (Associate Director - Equity Research)

Hey, it's Daniel Trecherico with Nick. Apologies if I miss this. I know we've already talked about LA, but curious if you could share the same store revenue growth expectation for your LA portfolio this year, would be useful for us to know what's in there given the moving pieces.

Michael Manelis (EVP & COO)

Hey, Daniel, it's Michael. Yes, I had that I think in the prepared remarks that we expect LA right now in our base case to deliver right around a 3% revenue growth. And that's based on some momentum and trajectory we saw in the and continuing some marginal improvement to play out through 2025, but nothing kind of like an outsized recovery in that market.

Daniel Tricarico (Associate Director - Equity Research)

Great. Thanks. That's all for me.

Operator (participant)

And we'll now take our next question from Rich Anderson with Wedbush.

Richard Anderson (Managing Director - Equity Research)

Thanks. About four hours ago, Mark, you said your target for expansion your target for expansion markets is 20%. I remember the number 25%. I just want to I don't know if you're just short handing it there or are you walking back your ultimate landing point for expansion markets?

Mark Parrell (President, CEO & Trustee)

Hey, Rich. Thanks for sticking in there for the call. Yes, no, it's 20% to 25%. That's what we talked to our Board about. I was just short handing it.

I think as you get to 20%, you may see us be maybe a bit less purposeful in hitting those numbers and a bit more open to doing buys in other places, like for example, our coastal existing markets. So $20,000,000 isn't magic, $25,000,000 isn't either, but we'd expect to land in that range. So that there is no change in approach, but we could end up either place.

Richard Anderson (Managing Director - Equity Research)

Fair enough. And so to my next quick question, then like in Aug. 0 you did $1,000,000,000 deal with Blackstone added two percentage points to your exposure expansion markets. I think I have that right. If the swing factor this year is $250,000,000,0.0 meaning you do every acquisition is an expansion market and every dispositions in a Coastal, do you get 500 basis points upside?

And do you think by this time next year, we'll be saying, well, you're at around 15%. Is that the cadence you guys are thinking about for the expansion markets? I think we all just want to get this kind of behind us and but also not rush it, of course. I'm just curious if you can sort of provide some timing ideas around finishing the job?

Mark Parrell (President, CEO & Trustee)

Yes, I think you definitely restated exactly how management feels. We'd like to get this done as quickly as possible provided there's good value to the shareholders and it's not dilutive. So, I'd tell you that your numbers are about right. Not every $3.50,000,000 dollars to $400,000,000 is a one percentage point. If you move it all out of one and into the other, the other thing you got to think about is the denominator.

So if we do grow the company and by debt issuance, which is what we put in there, I guess we could issue equity, but that's not being contemplated now given the share price, then you're in a position where you're going to accelerate that move a little bit. But I think you're give or take 15% if you do everything the way you said and that's what we hope. So to be done in a couple of years would be fabulous.

Richard Anderson (Managing Director - Equity Research)

Awesome. Okay. Thanks very much.

Mark Parrell (President, CEO & Trustee)

Thank you.

Operator (participant)

And that concludes today's question and answer session. I'd like to turn the conference back to our presenters for any additional or closing comments.

Mark Parrell (President, CEO & Trustee)

Yes. Thanks, everyone, for sticking around for the call, for this long call. I just want to put a quick plug in for upcoming Investor Day that Jeff Spector alluded to a minute ago. We're going to host that on Tuesday, February '25. We look forward to spending some time with all of you discussing top level strategy and a longer term outlook for the business.

It will be quite interesting and exciting. So we look forward to that. Thanks to everyone for joining us today.

Operator (participant)

And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.