EQUITY RESIDENTIAL Q3 FY2024 earnings call

Key Managerial Messages - Mark Parrell: Started by discussing third quarter performance, acquisition of Blackstone, and overall strategy. Mentioned solid performance in Q3 driven by demand in established markets, and that pricing in Q4 normalized. Spoke about capital allocation, including acquisitions in expansion markets and debt financing. - Alex Brackenridge: Discussed recent acquisitions, including 14 assets with over 4,400 units and $1.26 billion in price, funded by bond issuance, dispositions, and commercial paper. Talked about dispositions of noncore assets and acquisitions of newer, market-rate assets. - Michael Manelis: Addressed operating performance, noting low resident turnover, strong occupancy, but blended rate lower than expectations. Spoke about market conditions in different regions (East Coast, West Coast, expansion markets), innovation with AI resident inquiry application, and expense performance.

Established markets, which constitute 90% of Equity Residential's portfolio, posted solid performance in the third quarter driven by good demand and little competitive new supply. Expansion markets make up approximately 10% of net operating income assuming stabilization of assets under development, with recovery in same-store revenue expected to occur in 2026 due to high current supply levels.

Equity Residential remains on track with same-store revenue guidance for 2024 and expects to end the year well. No 2025 guidance yet, but preliminary thinking on 2025 same-store revenue includes steady demand from a well-employed affluent renter base, favorable supply, and continuing cost and lifestyle preferences favoring rental housing. Pricing in Q4 normalized consistent with seasonal patterns. Expansion markets' recovery in same-store revenue not expected until 2026.

Economic and geopolitical uncertainty could impact the business. Supply in expansion markets remains a challenge affecting occupancy and rate. Leasing spreads could be affected by slowing economy and heavy deliveries. Insurance rate changes and debt maturity in 2025 present uncertainties.

Q: Could you give a sense for the potential of bad debt and other income to add to revenue growth next year?

A: Bob Garechana said bad debt is expected to end 2024 around 1% of revenue, with opportunity to improve to near pre-pandemic levels. On other income, WiFi program contributes, with visibility and potential for incremental growth.

Q: Is it your expectation that leasing spreads could actually hold next year?

A: Michael Manelis said it's early in budget process, but factors like market rent growth will drive leasing spreads, and setup for 2025 has some catalysts but still need to work through supply absorption.

Q: Can you talk about the appetite for using a bit more leverage to fund acquisitions in the near-term?

A: Bob Garechana said the balance sheet is underlevered, with capacity to use debt capacity to take advantage of opportunities, and Alex Brackenridge mentioned underwriting an unlevered IRR of about 8% for acquisitions.

Q: Where are the residents coming from for Seattle and San Francisco?

A: Michael Manelis said migration patterns are shifting from being 20-plus miles out coming near in within the same MSA, not so much out-of-state migration.

Q: How are bad debt new levels trending?

A: Bob Garechana said new entrants' bad debt levels have normalized back to pre-pandemic levels, with quality of residents still high.