Good day, and welcome to the Equity Residential Fourth Quarter 2023 Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Marty McKenna. Please go ahead, sir.

Good morning, and thanks for joining us to discuss Equity Residential’s fourth quarter 2023 results and outlook for 2024. Our featured speakers today are Mark Parrell, our President and CEO; Michael Manelis, our Chief Operating Officer; Alec Brackenridge, our Chief Investment Officer; and Bob Garechana, our CFO. Our earnings release is posted in the Investors section of equityapartments.com. Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events. Now I will turn the call over to Mark Parrell.

Thank you, Marty. Good morning, and thank you all for joining us today to discuss our fourth quarter 2023 results and the outlook for 2024. I will start us off, then Michael Manelis, our COO, will speak to our operating performance and 2024 operating expectations, and followed by Alec Brackenridge, our Chief Investment Officer, who'll give some color on our capital allocation activities in the transactions markets. And then finally, Bob Garechana, our CFO, will review our 2024 guidance and our balance sheet, and then we'll take your questions. We are pleased with our fourth quarter performance, which was in-line with our October expectations. Our performance in 2023 was supported by a strong employment situation, more than 2.7 million new jobs created. And while the 2024 outlook for overall jobs is more muted, we should benefit from a continued low unemployment rate for the college educated, which currently sits around 2.1%, as well as continued good real wage growth. We will also benefit in 2024 from having low exposure to new supply in the vast majority of our markets, particularly when compared to the Sunbelt markets, as well as the customer comfortably able to pay our rents with current rent income levels at about 20%. Overall, with low unemployment and rising real wages, our target renter demographic remains in good shape. They are likely to rent with us longer as the prospect of homeownership in the near-term seems less likely with scarce inventory and relatively high mortgage rates. Less than 8% of our residents who moved out gave bought home as a reason to depart in 2023, which is the lowest we have seen since we started tracking the number. And over the next decade, the significant net deficit of housing across our country sets us up for good long-term…

Thanks, Mark. This morning, I will review our fourth quarter 2023 operating performance and our outlook for 2024. We produced same store revenue growth of 3.9% and same store expense growth of only 1.3% in the fourth quarter, both of which were in-line with our expectations. On the expense side, our low growth in the quarter and full-year 4.3% growth were helped by modest property tax cost as well as the savings produced as we continue to roll out initiatives focused on creating operating efficiencies and a seamless customer experience. On the revenue side, the momentum in December was a little better than we thought as sequentially we grew revenue in the fourth quarter by holding onto more occupancy, while maintaining positive blended rate growth. This set us up for a good start in 2024. Demand was solid across our markets and consistent with seasonal expectations. We finished the year with same store physical occupancy at 96% as we focused on building up occupancy in the slower part of our leasing cycle. Today, the portfolio is above 96%. As expected, we saw new lease rates go negative in the quarter as they typically do. Meanwhile, renewal rates for the quarter came in at 5.1%, which was slightly above our expectations. Together, this resulted in a fourth quarter blended rate growth of positive 80 basis points. These healthy fundamentals led to outstanding revenue growth in our East Coast markets and good growth in Southern California. As has been the case all year, the East Coast markets outperform the West Coast and by and large will likely continue to do so in 2024. As you saw in our earnings release, we have provided 2024 same store revenue guidance range of up 2% to 3%. The building blocks for this growth starts with…

Thank you, Michael. Despite an unsettled transactions market, we remain steadfast in our efforts to continue to reposition our portfolio by increasing our presence in markets like Dallas-Fort Worth, Atlanta, Austin and Denver and expect to see more opportunities to do so as the year progresses. As we underwrite potential acquisitions, we are always mindful of heightened levels of supply pressuring rents in our expansion markets and reflect tempered rent growth and concessions as needed in our projections. Currently, the transaction market remains unusually choppy with volumes down 60% to 70% compared to 2022 and down 40% to 50% compared to a more typical year like 2019. Nonetheless pressures on sellers to transact continue to mount as does the volume of new developments being delivered in these markets. New developments in particular are often not capitalized to be held for the long-term, and even with rates decreasing over the last few months, carry costs are high. Owners of stabilized assets will also see pressure to transact, as loans mature and extensions that were agreed to with lenders last year expire. Despite the short-term operating challenges in our expansion markets, we remain committed to broadening our footprint in markets that will see strong job growth and household formations over time and lower regulatory risks. As regards our own transactions activity, we didn't acquire any assets in the fourth quarter, but we did sell three, a small property in Seattle, one in the Bay area and one in LA. On average, the properties were 40 years old and total sales proceeds were $185 million at an average 5.8% disposition yield. While transaction volume overall is very light, we are seeing some opportunities to lighten the load of non-core older assets primarily in our West Coast markets. Since the beginning of 2024, we've…

Thanks, Alec. As Michael and Mark mentioned, 2023 ended up right in-line with our forecast last quarter. So, let's get right to guidance. Michael gave you most of the building blocks for same store revenue, but I'll finish up with bad debt, walk through drivers of same store expenses and normalized FFO and conclude with the balance sheet. In 2023, we were able to reduce bad debt significantly once the regulatory environment became more constructive. While we continue to work with non-paying residents, as we have during and after the pandemic, ultimately, we still ended up processing a high volume of skips and evicts. In fact, about 1.5 times pre-pandemic activity levels, which coupled with not adding significant amounts of new non-paying residents, helped us reduce bad debt as a percentage of same store revenue from well over 2% to just under 1.5%. So, great progress overall, but still a long way from the 50 basis points we were accustomed to pre-pandemic. Much like last year, we expect 2024 to continue to show improvement. We also expect the pace of this improvement to be dependent on the speed of the court systems, primarily in Southern California, where delinquency remains highest, to quickly process evictions, which is a hard thing to predict. As a result, our guidance assumes that 2024 remains another transition year for bad debt and that we don't get all the way back to pre-pandemic levels. Instead, our guidance midpoint assumes that full-year bad debt as a percentage of same store residential revenue is slightly above 1% or a 30 basis point contribution to 2024 growth overall. If that plays out, by the end of 2024, we would expect to be a little under two times pre-pandemic levels. Turning to expenses. Expense management is core strength at Equity…

Thank you. [Operator Instructions] Our first question is going to come from Steve Sakwa from Evercore. Please go ahead.

Great. Thanks. Good morning. I guess, wanted to just maybe go through some of the building blocks of growth in 2024 either for Michael or Bob. But as you kind of look through the moving pieces here. It seemed like maybe the new rate growth that kind of flattish might be one that could pose maybe a bit more of a challenge here of job growth slow. So, just curious how you sort of sized all up those components and how did you think about the new lease component with the fact that you kept occupancy flat, I guess, within the guidance?

Yes. Hi, Steve. This is, Michael. I'll start. Maybe Bob can come over the top. So, I think when you look at the building blocks for the guidance, you need to realize, one, we're giving you a range, and there's a lot of different ways you can get there, but it's really the top level themes that underline and pin those midpoint assumptions. So, when we thought about new lease change, we started with the fact that we know the job growth is moderating this year, and, therefore, we would expect market rents or asking rents just to be kind of less than normal across the large majority of our markets. So we kind of model a normal seasonal slope for our kind of rent trend to build, and then we plug that in and we say, okay, what does that equate to? And right now, across our market, it's balancing out to basically be about flat on new lease change for the full year. Some of our markets are still positive. Some of our markets are still positive three, and some of the markets are still coming in at a negative growth through the year. But I think when you start to pull on any one of those, you need to go back to the top level themes and ask yourself, okay, what's really changing? So, if there's a material shift in job growth, sure. I think we would experience more pressure than we underlined in that the midpoint of our range. But again, it's, when does that happen in the year? And where are we? Because today, I'll tell you, we have taking a defensive position. We're starting the year with pretty strong occupancy that really gives us some confidence heading into the spring leasing season, and we'll just see kind of what pricing power emerges from that.

Great. And then just maybe one question on the transaction market. I know it's not been terribly, robust, but maybe, Alec, can you just speak to where you think maybe IRR hurdles are today that the 10 year is sort of plus or minus 4% come down way off the high. I realize NOI and rent growth is slowing, but where do you think investment hurdles are today either for EQR or for the market broadly speaking?

Hi, Steve, it's Alec. Thanks for the question. Well, as you stated, it's a pretty choppy market right now and there aren't a whole lot of data points. As you know, the NMHC, conference is going on in San Diego right now. So, I have some pretty current time information, which is really a reiteration of what we've been experiencing in the last few months, which is a standoff between buyers and sellers. Buyers generally looking for a 5.5ish cap and sellers generally looking for something closer to five. So, not an insurmountable gap at some point, but right now, it's hard to peg things. But, assuming things kind of land somewhere in between there at a 5.25. I think most people are shooting for an 8ish IRR and obviously it depends on the rent growth assumptions and the residual cap rate, but somewhere in that range, maybe a little bit less if they're going to be more aggressive.

Great. Thanks. That's it for me.

And our next question is going to come from Eric Wolfe from Citi. Please go ahead.

Thanks. It's Nick here with Eric. Maybe just following up on that. So 8ish or so IRR, I guess, more specifically you talked about obviously the Sunbelt supply and the impact that has on your underwriting on those deals at least initially. So, when you're underwriting deals both on the buy and sell side today, what are you underwriting for IRRs in the Sunbelt? And then what are the IRRs look like for the assets you're planning to sell more coastal.

So, Eric I'm sorry. It's not Eric.

It's Nick.

Nick. Sorry, Nick. It's Alec. And, the IRRs don't end up being that different, if you assume that, sure, there's a glut of apartments in the Sunbelt right now, so the next couple of years are going to be tough. But after that, the start's already down a lot. The demand story hasn't changed. I think there's still these cities that we're interested in that some of which are Sunbelt cities, like Dallas, like Atlanta, like Denver and Austin, still our great job growth generators, still have a lot great long-term demand side story. So, I think you see a couple of years that are tough, but then you have a pretty good few years after that. And I think you run that through your pro-forma and you're roughly the same. The difference we're seeing on a lot of things that we're selling right now and why the IRR for us is lower in terms of the hold scenario and why we choose to sell it is a lot of older stuff. You saw that, we're selling 40 years old property and that have very high capital needs. And some of that has our ROI on it. Some of it, it's just preserving the asset. And, there may be a buyer that sees things differently, sees a little more upside. But in our case, we think the capital is better used elsewhere. So, in our eyes, it's probably a 7ish something or other, and we think that money can be redeployed better elsewhere.

Hi. It's Eric. Sorry to keep switching people on you. But, maybe just talking about coastal rent growth for a second. You talked about supply being in check, homeownership, very unaffordable, solid real wage growth, job growth, okay, maybe getting a little slower. But I guess the question is why aren't we seeing stronger rent growth today just given all of those positive dynamics? And is there anything that do you think in the future would turn it around such you see that sort of more than 3% type rent growth in those coastal markets.

Hi, Eric, it's Mark. Just to start, the others can contribute. I mean, you look at the numbers in DC and Boston and New York last year were outstanding. So, we're being thoughtful. We're being a little cautious going into a volatile year, but your restatement of the setup is correct. I mean, those northeast markets have steady demand, by and large, minimal supply or in DC's case, strong absorption characteristics. I mean, we're optimistic those markets can continue to do well. In some cases, like New York, and Michael alluded to that, they're coming off really big rent growth years. In some cases, there's a little bit of a pause to catch your breath and let resident incomes grow to catch up to rental growth. But, I mean, if you didn't get that message, we're super optimistic about the northeast markets and think they will do very well. It's just trying to handicap all the various crosscurrents in the economy that are challenging for us.

Thank you.

Our next question is going to come from Jeff Spector from Bank of America. Please go ahead.

Great. Thank you. My first question is a follow-up. I heard a comment and I think it was on the Sunbelt quote it could be a couple tough years. I guess can you expand on that? And then, and maybe most important is talk about when you expect supply pressure to peak, let's say, in Seattle. And I know, again, Sunbelt is, smaller markets for you. But if you have a view on the Sunbelt, it would be appreciated? Thank you.

Yes. Hey, Jeff. This is Michael. So I'll start. And just specific to the Seattle and the supply that we see, it is back half loaded for us in the market with basically, a lot of concentration in Redmond as well as the city of Seattle. So for us, like, the peak is what we expect to experience is going to be somewhere in that back half of this year. And you could already see the starts coming way down. So, I think the level of competitive pressure that we face in ‘25 and Seattle will be less than what we're facing in ‘24. Relative to the Sunbelts, I mean, this is a great question because it's going to take a while to absorb the units that are coming to this market, and the supply that we look at is fairly constant across many of the Sunbelt markets all year long by quarter, which tells us that and what I said in the prepared remarks that we expect to feel this pressure at our assets all year long. I think as you turn the corner and you get into ‘25, you're going to start to see that supply number slow down, but you are still going to have a little bit of the overhang of the pressure from the units that were delivered to the market in ‘24.

Yes. I'm just going to add a little bit to that. If you look at ‘25 expected deliveries and some stuff from ‘24 will definitely slip, I mean, it's about as big as ‘23’s delivery. So, it's not like ‘25 is a, incredible decline. So, what we really see, Jeff, as we look at this is still good demand in those markets. That's why we like Dallas, Fort Worth, Denver, Austin and Atlanta. But the supply picture in our experience, we'll spend this whole year with declining new lease rates, occupancy pressure, all of those things, and you as an investor and an analyst may start to see improvement in that so called second derivative of rent growth late this year beginning of ‘25. But same store revenue growth in our experience will be worse in ‘25, not in ‘24 because all those leases that are being rewritten will go through the rent roll. And so you may be more optimistic in ‘25, but your numbers actually likely will be worse. So, that's what we've seen with supply in our history across our markets, and then we don't really see why it'd be any different here. And I think the wild card is if you have incredible job growth in these markets, you may be able to absorb some of this supply more efficiently and get through it more quickly. But the idea that ‘24 is the only oversupplied year is kind of a tough one for us to accept.

Thank you. That's very helpful. And is that why you're assuming acquisitions in the second half or is that just conservative approach I guess to the guidance on acquisitions or to your point, are you really expecting these opportunities to arise more second half ‘25 in your expansion markets?

Well, the guidance is just to help you model. If Alec, can buy things in his team earlier at good prices, we'll buy them earlier. The relationship I think you're going to see here is that prices now seem okay, maybe not quite good enough, but the discount to basis, the replacement cost, pardon me, is very good. It's the cap rate. And when you look at, like, two years of declining rental growth, you buy in Dallas, your year two number might be lower your cap rate than your year one. But on the other hand, later this year, you'll be past some of that and your year two number will look a little better. So, likely paying a higher price. So, that's what you're going to see us navigate. We like these markets long-term. We think owning the four markets that we've, tabbed as our expansion markets, say, 25% of the company will create more balance and drive growth better and reduce volatility over time, Jeff. But getting into them is a little bit of an art. There's going to be a little bit that we probably do sooner, a little bit we do later, and you may feel better about the price in one and not as good about the revenue growth in the other and vice versa. But, we're prepared to do that. And, again, the number you see there is just sort of the guidance assumption. We'd be happy to do more if we can find more.

Thank you.

And our next question is going to come from Robin Lu from Green Street. Please go ahead.

Good morning. I just want to touch on taxes. From your conversations with cities, are you hearing any markets where lower values are starting to flow through to tax assessments?

Yes. Hi, Robin. It's Bob. Thanks for the question. We are seeing lower values in some markets. In fact, we've gotten some assessed values, actually back already, as we look at 2024. And on the margin, you are seeing some decreases. So for instance, in Washington state, we saw about a 1% decrease, and we've got most of the values back there, and we're seeing it in other places. Obviously the income, as assessors look at values, the income production in 2023 was really quite good. But the offset there was really the cap rate change just given risk free rates and other things. And so we are seeing some acknowledgment by assessors that values are in fact, lower than what they had initially assessed at. The open item as you think about real estate taxes for 2024 will be where rate comes. And we have rates in some places, and we'll see where they, fall out in others.

So, the magnitude of where values have fallen in, let's call it, the last couple of years haven't really fully been baked in yet. They're still sort of trickling into tax assessment. Is that how -- am I interpreting that correctly?

You are correct, and that makes for an excellent appeal activity for our real estate tax team as we challenge values.

I'm glad it could help. Just on the second question.

Thanks.

I did obviously notice that you, did some stock repurchases in the open market after a long period of a pause, with, I guess, little less system development and no near-term debt maturity, are you expecting or how does buybacks drive against other capital, uses this year, particularly on the way that you, the cadence between disposition and acquisitions for 2024?

Hi, Robin, it's Mark. Thanks for that question. Our primary capital allocation goal is going to remain building out the portfolio in the way I just described in these expansion markets and lowering exposure in Washington DC, New York, and California. Again, we believe that portfolio will create the highest returns over time, the lowest volatility, that that'll make the shareholders the most money in the long haul. All that said, we're going to continue to consider these share buybacks, especially when you get this bigger value dislocation and when you can fund it with assets that are the least desirable, among the least desirable in the portfolio against the portfolio that we think is really top notch and where there isn't a lot to buy. That's an important other ingredient. There wasn't a lot of opportunity cost here, there wasn't a lot else available to buy at prices that made sense and all those capital structure considerations have to be thought about too. We've talked about on these calls. Things like, does it create a lot of tax gain that's hard for a REIT to manage. That worked out okay for us. Bob has done a great job and his team on the balance sheet, so I don't have to worry about debt maturities that we need to kind of husband our capital. And another I want to introduce is you got to be careful about platform scaling. If you sell too many assets, you can really increase your overhead as a percentage of revenue. But all that said, the Board and the management team remain open to buybacks. And for us, it's hard for me to give you a formula. We're just going to kind of see what market conditions are, where the stock goes, what's out there to buy, and, keep our mind open to doing more, stock buybacks.

Right. Thanks for the color.

And our next question is going to come from Michael Goldsmith from UBS. Please go ahead.

Good morning. Thanks a lot for taking my question. My first question kind of dovetails off of Jeff's one. If you kind of slice your portfolio between kind of core coastal, San Francisco and Seattle and then expansion markets, you talked quite a bit about just when you're expected to see the second derivative and basically how long it's going to take for the expansion markets to recover. Can you put some more context around San Francisco and Seattle, how that timeline compares? And if you're starting to see some of that second derivative recovery, now or expect to see it in the near future? Thanks.

Hi, Michael, it's Mark, and I think, Michael Manelis may have something to add here. So, we talked a lot about San Francisco on the call, the last one and why we like the market long-term, feel the same way. The management team thinks there's going to be elongated recovery in that market. Conditions on the ground are a lot better. The mayor put out some information about crime reductions. They have the biggest class of police cadets, at the police academy in San Francisco, they've had since before the pandemic. So, there's some good things going on. But until, as Michael said, we get a little more tech job growth, which talking to the team and talking to others in the Bay area and in the city of San Francisco is probably a more later ‘24, ‘25 thing. That's probably where you get rent to take off. The thing I want you to think about is, you've had spectacular growth in incomes in the Bay area since 2019, over 30% nominal and 12% or 13% on a real basis, yet our rents are down in the city of San Francisco 20% since 2019 and kind of flattish to up marginally in the Bay area. So, this is a market that, like New York, can really take off once you get some job growth, because there isn't a lot of new supply. Housing costs are pretty high. So, the management team's optimistic about the recovery. The timing is kind of tough. I don't know, Michael, if you've got anything you want to add.

Yes. I mean, I think we expect these markets to be volatile this year. And just starting off the year right now, I got both markets at 96%. Yes, we issued a lot of concessions in fourth quarter to get there, but the fact that we got there shows us there is demand in the marketplace. And as we think about even, like, the new lease change. So, both of those markets reported in December about a negative 8% new lease change. When you look at the January results, they're now both at about a negative 3.5%. So, it's a pretty material shift. So, the setup heading into the spring leasing season is really good, but we've been there before, and we've seen those markets kind of hit a pause and then kind of retrench a little bit. So, that's why we're just being a little cautious. We're going to wait till we see probably a couple consecutive quarters of improving fundamentals before we kind of change some of our long-term modeling on those markets. The other thing I would just add besides the value proposition of San Francisco is Seattle benefits from having, like, the lowest rent to income ratios out of all of our coastal markets. So, we just see this opportunity and the fundamentals for those markets to recover. It's just like Mark said, it's hard to pinpoint when.

Yes. I forgot to mention something on Seattle I just want to throw out there. Seattle's nominal wage growth since 2019 is 40%, right. Yet our rents in that market are up 7%, and downtown, they're flat. So, again, these markets have the ability to pay more for great quality housing. And, again, Seattle is a supply, push this year, but after that, it gets a lot lighter. So, that's about a third of our portfolio, Seattle and San Francisco. And I hope, Michael, we're talking about that second derivative towards the end of this year for you, but we haven't embedded that into our guidance.

Got it. Very helpful guys. And then my second question is just related to bad debt as a percentage of revenue, it was flat sequentially. I think there's an expectation that it could be choppy, but continue to trend down. So, what's assumed in guidance for 2024? And do you expect a continued slow and steady pace of improvement? Or should we expect that to kind of to get better in a specific quarter or just any sort of visibility around the pacing of improvement? Thank you.

Yes. I'll grab that, Michael. It's Bob. So, to start with what's assumed in guidance, we do assume that we will get, we will improve. So, we ended the year at, call it, 1.4% of bad debt as a percentage of same store revenue. I think I said in my remarks, we expect to get to 1% a little over 1% for the full year. That means that by the fourth quarter, we're assuming that we're sub, 1%. You're correct in the kind of 3Q to 4Q in 2023 it being flattish, and what I would caution and is that it is, this is a thing that is very hard predict because of the court systems. It has puts and takes. There's more of a step function than a linear kind of improvement function associated with it. So, our expectations and guidance is that, Q1, which we're in right now is more flattish, and that you started see seeing improvement later in Q2, Q3, and Q4, because of that kind of case of the court system and because there is there's always been a little bit of seasonality in this number as you think about, like, post holidays, bad debt in the first quarter is always or typically a little bit higher anyways. So, expect it a little bit of a choppy step function, but expect improvement overall.

Thank you very much.

[Operator Instructions] Our next question is going to come from Jamie Feldman from Wells Fargo. Please go ahead.

Great. Thank you, and, thanks for taking the question. So, I guess just thinking about your comments on Sunbelt versus coastal, you think about the assets you bought, last quarter, one year old, selling assets that are 40 years old. How much of your view on those markets is, tied to just the types of assets you own? At least if they're newer assets, are they in lease up where you meet, it means you have more concessions, more challenging to get, to get leased up. Is there some of that bias in the numbers you're putting out, or would you say, your view of what you're seeing in coastal is truly, a view across the markets?

Yes. Thanks for that question, Jamie. I guess I attack it another way by certainly lease ups are different. But remember, the numbers we're telling you are same store numbers, so they won't include lease up conversations. But I would say we have relatively small portfolios in those markets. So, if one property is being hit hard, it could be one out of eight of our same store assets in, Denver. So, I think that is it. I think different people, obviously, different parts of the market feel it differently. So, that would be my comment. We have relatively small portfolios. I mean, Austin, we have three same store assets.

So, and, Jamie, this is Alec. I would just add, though. When you're in a market, though, that's got so much supply, and these are historic amounts, where concession levels start to get more than two months or, really excessive, I think everyone gets impacted, whether you're a B property or an A property. I can't see how you're immune, from some of that pressure.

Okay. That's very helpful. And then as we think about the investment market, I mean, clearly, the debt markets are coming back, pretty quickly. We've now seen some real estate M&A. So, I assume competition is going to get harder for the types of assets you'd like acquire in ‘24 and beyond. How do you think about the importance of just transitioning the portfolio, as soon as you can versus, really hitting that right number? Do you think maybe your underwriting assumptions have to loosen up a little bit just so you can achieve some of your strategic goals, over the next couple of years if the market gets more competitive.

We'd love to move more quickly in completing our, repositioning. I don't feel any need to do that by selling assets cheap. I think you'll continue to see us, sell assets that are a little bit less desirable from our point of view. It's more about the difference, Jamie, between the sale and the buy, if we can sell things well, we can pay up a little bit on the buy side. And, again, we're creating that diversification we value. So, it's a little bit about if we're doing trading like that, it's going to depend on both the sale price and the buy price. To the extent we try and expand the company through debt activities, then the interest rate that Bob's borrowing at is going to become more relevant. So, I think right now would be somewhere in the name of where the 5% for 10 year money. So, I hope that's helpful, but we'd like to move faster. We point out that since 2019, when we started this, we've moved billions of dollars of capital into those markets, but the transaction markets have been closed for half of the last four and a half years because of COVID and because of the Fed. So, we're hopeful that in a wide open year, I mean, we did, I think, $1.7 billion back in ‘22. We're capable of doing $2 billion plus a year for sure. If the opportunities present themselves and we push the gas hard, it's got to make some sense. De minimis dilution is one thing. Wholesale dilution would require some sort of justification that, we could get on this call and you all would feel was compelling.

Okay. So, it sounds like it's more about the dilution than it is the absolute cap rate or the absolute IRR?

We would accept some dilution to complete our strategic repositioning. The IRR matters. I mean, these deals got to make sense. We like owning newer assets because we'll have less capital. At the end of the day, the portfolios we'll own in Atlanta, Dallas, Denver, and Austin. We'll be the youngest portfolios of our REIT competitors. We think that's beneficial to our shareholders on the IRR CapEx side, not just on the NOI side. So, yes, we want to push the gas on this. We want to move this along. The IRR matters. The cap rate matters, dilution matters, but, getting it done matters a lot.

Okay. All right. Thank you.

And our next question is going to come from Brad Heffern from RBC. Please go ahead.

Yes. Hi, everybody. In the prepared comments, you mentioned some increased price sensitivity in New York late in the year. Can you add some color on that and talk about what gives you confidence to rank that market relatively high for 2024?

Yes. Hi, Brad. This is Michael. So, I think in the prepared remarks, I was saying we saw just that the overall market level, there was what I would describe as just like rent fatigue where you started to see, certain types of units, one bedrooms, all of a sudden hit a price point at, like, $4,000. And it just kind of the activity level slowed. The renewal conversations became a little bit, more challenging. So, I would say we still expect pretty good growth out of New York in 2024. We're just saying we're tempering those expectations a little bit. The fundamentals there would all suggest that you have pretty good pricing power all year long because you have almost little to no competitive supply in Manhattan. You've got good demand drivers, in those markets, but I just think we're realistic that we've had two really good years of rent growth of rate growth that we're just kind of saying, okay. Let's just take a pause on that, and let's wait till the spring leasing season shows us, exactly what the market's willing to absorb.

Okay. Got it. Thanks for that. And as a follow on to your earlier comments about wage growth on the West Coast versus where rent has gone. I guess, how much of that opens up an opportunity for future rent growth versus how much of that just reflects that those markets have become unaffordable before the downturn, and they've been, semi-permanently reprised?

I guess we'll see. I our sense, again, from all our comments on San Francisco and Seattle is that they still are appealing places for our demographic to live that people will want to live in the center of those cities and the whole market and that, I don't know about some sort of wholesale repricing. And you saw New York recovered smartly on the rent side, and there's some deals going on in the investment sales market that would support New York trading at a lower cap rate as it historically has than the national average. So, I think the story is yet to be told on the West Coast markets because there's just no one selling, in the urban centers. But, I don't think, there's an answer to that, but I think the appeal of those centers is true and obvious and will come, and we've kind of given you our view of that.

Okay. Thank you.

And our next question is going to come from Alexander Goldfarb from Piper Sandler. Please go ahead.

Yes. Hi, good morning. So, two questions here. First, on the renewals, in addition to jobs, I guess renewals also seem to be a wild card. I realize there's a frictional cost to moving, especially in urban assets, but can you just walk through your views on renewal activity for this year. And it seems that you guys think it will hold up much better than new rents. And I'm sort of curious, I would think those same existing residents would see the new rates that, newcomers are getting in would want a rent reduction, not a rent increase?

Yes, Alex. This is Michael. So, yes, I think it's a great question. And what I could tell you right now is that the quotes for the next 90 days have already been issued. We do expect to continue to renew about 55% to 60% of our residents, and achieve approximately anywhere between a 4% and 4.5% growth off of about 6% quotes that are out in the marketplace. You got to remember in the last couple of years, I mean, we put a lot of effort into this renewal process. We've centralized our renewal negotiations. That's really helped us navigate, the negotiation conversations with residents. We're leveraging all new processes in both the quote generation as well as the negotiations. We're layering in data science to help enhance some of these results. And right now, we do expect renewal performance to be fairly stable, but we have modeled for further deceleration, like, later in the year. So, the full year is expected to come in just over 4%, which is still a pretty solid growth, but we do expect to see some deceleration. And I think when you look at the spreads right now that you see in the markets with new lease change or market pricing and renewals. Sure, there's more stickiness when it comes to the renewals, and we have a lot of great rich history and data going all the way back to, like, 2006. That shows us that even when markets are dislocating, and I could use a San Francisco back in, like, 2016 where it was just getting a lot of new supply right on top of us. That market held up pretty well from the renewal standpoint and landed somewhere in that back half of the year with about 2% averages. So, it's not uncommon to see these spreads in the marketplaces. And the other thing, I guess, I would point out is we start getting into ‘24, our concession use was elevated back in ‘23. So, I can renew a lot of these residents flat in some of these expansion markets or Seattle and San Francisco and still walk away with a 6%, 8% increase on renewal. So, it kind of takes away some of the spread that you're looking at and why we have so much but in that renewal number being right around 4%.

Okay. The second question sort of dovetails on the rent fatigue comments. It seems, I mean, using New York as an example, no new supply, people want to be back in the city, and we don't really hear stories anymore about doubling up or even moving to New Jersey is still an expensive proposition. So, from a pricing perspective, do you feel more comfortable today sort of across your portfolio, especially in markets like New York, in pushing pricing versus years ago when renters and I'm not just talking about new supply, but we're doubling up or maybe moving to New Jersey or outer boroughs or something was more of an option. Do you feel like you have more pricing power today to push rents more than historically?

Yes. Alex, this is Michael. I'll start. Maybe somebody can layer on top of that. I think this is really a market and submarket kind of look. So, it really just depends as what is the spread, how much is Brooklyn's rent compared to Manhattan, what is that trade-off, decision to happen. So, I don't know that I'd say I have more pricing power today than I have had historically. I would say we have really good processes in place today that help us navigate through these situations. And each market is going to deliver different rate growth based on a whole lot of factors that go into the strengths of markets. And as we look for, 2024, all I can say is that the setup feels pretty good. Yes, it's like normal. The rents are doing what they seasonally should be doing, sequentially building each week. Our application volume is sequentially building each week. I think we need to see that momentum in that early part of the spring leasing season to really be able to answer that question and tell you, do I feel like I got more pricing power or less than historical times.

Thank you.

And our next question is going to come from Rich Anderson from Wedbush. Please go ahead.

Hi, thanks. Good morning, everyone. So, on the topic of expansion markets, is it absolutely a fee simple type of investment? Or would you be open, given the sort of the complexity of all the lending environment and all that sort of stuff and some and distress balance sheet distress and whatnot. Would you be willing to invest, in different areas of the capital stack and with an intention to ultimately own? Or are you going to have enough opportunity to keep it simple and just go, through equity channels.

Hi, Rich. It's Alec. Well, we prefer simple if it's available, but if there's a good opportunity that would require us to participate elsewhere in the capital stack that would lead to us likely owning the property, we're wide open for that as well. So, I do think there's going to be a lot of fee simple stuff out there, though. So, we'll balance that out, but we're happy to talk to anyone that owns a while located apartment in the expansion markets, about any structures they have.

Okay. Great. And then, if I could just sort of, ask the sort of a different question about, what you said, Mark, earlier about 2025 being a tougher year in the Sunbelt versus 2024. But then you said something like, but the second derivative might be thought to be better. I didn't quite understand that. So, maybe you can clarify that. But would you say, generally speaking that the Sunbelt sort of recovery process is maybe a year behind San Francisco and Seattle? Is that, like, does that sort of help define the condition that you see it today?

Yes. Well, I'm going to say is just how we've seen things play out in our market. So, the first thing that you see is you start to see a decline in occupancy when you get all of this, when you get a lot supply or big demand drop or both. So, the markets you've seen competitors in the RealPage numbers sort of show declines in occupancy. That pressures owners to give concessions and lower face rate, and then that in turn eventually affects same store revenue, which is, of course, the interplay between occupancy rate, renewals, and the whole nine yards. And so, in when it reverses, the exact opposite happens. First, you start to see, I'm building my occupancy a little. As Michael spoke to Seattle and San Francisco, that gives you a little bit of confidence. So, now you're going to take away of your concessions, you're going to try to move rate up a little, especially in the spring leasing season, you're going to test that as that improves, and, eventually, that'll flow through to your same store revenue number. So, that's what I mean by that comment. So that this year, same store revenue might hold up better in a heavily supplied market or a demand challenged market because you're looking at a situation where your rents, you haven't rewritten every lease down yet.

Right.

But over the course of two years, you will. And in that process, that second year same store revenue number is often lower, But we're often telling you, hey, you know what? New lease is going up. We're feeling better in a market. And that's what I'm sort of expecting. We'll see how it goes, but my expectation is sometime in ‘25, folks will be talking about an improvement in some of those, I call it second derivative, but new lease rates, street rent numbers, and it isn't going to be dramatic right away, but it's sort of some solidification of that that's really built on occupancy starting to improve. So, again, you got all this supply. Our experience is it compounds. It gets worse before it gets better, and it just takes a little while to run through the entire P&L. Is that helpful, Rich?

Yes. That's really helpful. Thanks. And then would you then sort of characterized Sunbelt as being X money months behind San Francisco, Seattle? Is it a year in your mind if you were to just sort of simplify it?

I don't have a prediction on that. We told you we didn't put San Francisco and Seattle in this year's improvement bucket. I have high hopes, but it feels like because of supply in Seattle and just job conditions in San Francisco, it could take a little longer, and I think the Sunbelt is just starting its challenges. So, I think both areas will be a little challenged in ‘24.

Okay, fair enough. Thanks very much.

And our next caller is going to be John Kim from BMO Capital Markets. Please go ahead.

Thank you. On your blended lease growth, improvement in January, can you comment on how you think this trends for the remainder of the quarter? I realize I expect it to improve in the second quarter. And if there's any discrepancies in the market performance versus what you had in the fourth quarter, as shown in Page 17 of your supplement?

Yes. Hi, John. This is Michael. I could start with that. So, I mean, I think as you look at this and I cited before just the improvement that we saw in San Francisco and Seattle coming off of December and into January with the new lease trends going from, like, a minus 8% in December down to, like, the minus 3.5%? The portfolio itself was at minus 5.7% for new lease change in December and is now in January that we put in the release at a minus 3.7%, the expectations clearly is that you could see with sequential rents improving each week, that number is going to continue to drop, as you work your way through the quarter. So, on the renewal side, it's a little bit of the opposite story. You saw renewals were a 5.2% in the month of December, and in the release, we have January at the 4.9%. The quotes are out there, but we do expect this renewal number to keep trending down as we work our way through. Somewhere in that 4% to 4.5% range is what we expect to achieve off the quotes that are in the marketplace. So, I think you're going to see the interplay between these to shift a little bit where you're going to have strength because you're going to have new lease change starting to recover and hopefully turning positive as we start off the spring leasing season, and we'll see if we keep this kind of momentum in place to do that, and you'll see the moderation of renewals, but still at a really strong number if we come in anywhere between that 4% and 4.5% growth.

Okay. And my second question is on, your development yields. Like you said, we're trending closer to 6%, given higher concessions. Can you comment on the level of concessions that you're providing today? And if, is this really driven by your Texas and Denver developments, or is this broad based?

Hi, John. It's Alec. Well, we are literally just starting up our lease ups right now, so we don't have a lot of data yet. We are assuming a month right now, but that could be flexible over time. And, those lease ups are three in Texas, one in suburban New York, which will probably see very little, of that kind of concessions, and then, two in Denver.

Great. Thank you.

And our next question is going to come from Adam Kramer from Morgan Stanley. Please go ahead.

Hi. Yes, maybe a little bit more of conceptual question and I guess also kind of in-line with Alex Goldfarb's question earlier. But just looking at kind of the new lease change by market, comparing that to the renewal change by market, it's kind of interesting that new lease can vary pretty by some of these markets, but renewals are in a pretty tight band, call it 200 basis point band give or take. And so I guess the question is kind of twofold, right? Is there an ability to maybe push renewals even more And say a market like DC where new lease is holding in a lot better versus kind of expansion markets, right or San Francisco where I guess I'm kind of surprised by that historically widespread between the new and the renewal rate. And should I be maybe a little bit worried about renewals kind of falling a little bit, getting closer to that kind of deeply negative or somewhat negative new lease change? Again, a little bit more of a conceptual question, so apologies, but hopefully that makes sense.

Yes. Hi, Adam. It's Michael. So, I mean, I think there's just more stickiness into the renewal stats that you look at this. And you're also coming off of a period of time, which is low transactions. So, there is a little bit of that in these numbers. I think as we think about this I mean, like I said, we have this data going all the way back in time. It's just not uncommon in the fourth quarter to see new lease change goes negative even in a pretty good year with rate growth happening in the marketplace. That new lease change goes negative and renewals stay positive. So, it is a really uncommon situation for our renewal growth to go flat or even think that it's going to be negative. And like I said, we've just put so much into our processes. We have so much good information and insights to it. We got a high degree of confidence. That being said, if there's a big dislocation in the market, right, even the deceleration I mentioned before could be more robust than what we've modeled.

Great. Thanks. That's really helpful and I appreciate that color, and all of kind of the building blocks earlier on the call too. So, maybe on concession usage, I know you've talked about it a little bit on the call thus far, maybe just if you don't mind just some of your expansion markets, kind of the level of concessions in terms of number of weeks that are being offered?

Yes. So, I think I would just start by just saying that the concession use right now remains concentrated in the Seattle and San Francisco portfolio for us with about 70% of all the concessions being issued. When you drill into the expansion markets, I mean, it's such a small percent of the absolute portfolio. But right now, when you go across them, it's running between, like, 30% and 45% of applications receiving about a month. I'd say Dallas right now is the one market where we're up closer to about six weeks, worth of concessions being issued. And like I said, we would expect that to kind of continue at that level in those expansion markets, and we're watching what's going to be happening with the new lease ups and how competitive are they so that we know where we need to play. The fact that these markets are now, like, 96% or even some of them over 96% with that concession use that we did in the fourth quarter is really a good sign, because the last thing you want to do is turn on concessions, do leasing, and still land at an occupancy like where you started with. That would not be a good situation. So, we feel like the setup right now is defensive. These occupancies are 2% to 3% above. We expect to issue 30% to 40% of our applications receiving concessions of a month to a month and a half in those markets.

Great. Thanks so much for the time.

And our next question is going to come from Haendel St. Juste. Please go ahead.

Hi, good, I guess, good morning out there to you guys. Mark, I guess the, first question for you, following up on Rich's question earlier about your potential interest in stepping in and participating in other parts of the capital stack, seems a bit of a departure from how you responded to this the Mez Investments in the past. So I guess, first, is that fair and why the change of heart? I'm assuming perhaps it's reflective of the opportunities. But second, I'm assuming or is it fair to assume that you'd be solely focused on the Sunbelt. And then third, what level of return or premium to acquisition cap rates would you seek there? Thanks.

Okay. I’m going to start with some of that and then Alec may answer parts of it as well, Haendel, but on the Mez Investment side, I think the part that Alec emphasized was the path to ownership. So, what we've been more hesitant to participate in is to just create a book where we are consistently making mezzanine loans or preferred equity investments in deals where it's improbable that we would end up being the owner. When we're working with the lender and the owner and we get in the capital structure and there's a good chance we're going to end up with the deal. That, to us, is very different. That is stuff we did do back in ‘08 or ‘09 through 2010. So, that is a familiar thing for me and Alec and a lot of folks on the team to do. So, that's how I would distinguish the two of those. I don't know if there was anything else in that question you wanted to answer, Alec. No?

No. I think we're good. I mean, we will be opportunistic, though. It's free of our company, and we'll keep looking for, chances to buy great real estate.

I guess I will, you asked about acquiring assets in one form or another in our established coastal markets, we're certainly open to that. We've got some development deals. We're likely to start in some of those established markets that are in areas really hard to build. But the primary focus is to get into these expansion markets and add capital there.

Got you. That's helpful. But a follow-up, what level of return potentially would you or premium, to acquisitions would you seek were you to get involved in, some of these Mez or path to ownership type opportunities?

Hi, Haendel. It's Alec. It’s really impossible to peg that without knowing the specifics of the deal and the circumstances around it. But, obviously, we're very focused on getting compensated for any risk would take beyond a typical transaction.

Okay. Fair enough. One more on the expense side. I was hoping for a bit more detail on the key components, appreciate the overall, high level thoughts you provided there earlier, but maybe some specifics on the key components like, what you're embedding in your guide for specifically taxes, insurance, R&M, and also for the ongoing tech initiatives. I think last year, you outlined $10 million or so of savings via that. I'm just curious what level perhaps we could see from tech savings this year? Thanks.

Yes. Hi, Haendel, it's Bob. I'll start with some detail on the expenses and then maybe pass it to Michael on the initiatives. I will caveat on the initiative side. Most of our initiatives, as Michael mentioned, are more revenue focused this year than expense focused, but he can touch on, initiatives if I don't cover something. So, on specifics related to some of the categories, we are expecting, as I kind of mentioned, utilities and real estate tax to grow higher than what they did in 2023. That implies or means that at the midpoint, we'd have real estate taxes around, call it a 3%, and utilities more around a 6% growth rate relative to what were, lower growth rates in ‘23. On the other side of the equation on the big categories, you have R&M, which experienced a lot of inflationary pressure in 2023. We expect that to normalize. So we expect, R&M to grow something more like 4%. That is where we are realizing some of the opportunities and, work that we've done on the initiative front to reduce our dependency on contract labor and places where there's wage pressure. So, that's helping us get to that 4%, anticipated growth. And payroll, we think, we're not anticipating as much, challenges on the medical benefit side, and we're just yielding some of the, payroll optimization we did was back end loaded in ‘23, so we'll realize more of that benefit in 2024. Does that help you on the color side? Is there any categories I missed?

No. That's helpful. But in relation to I believe it was $10 million that you outlined last year from tech driven efficiencies, first, is that accurate? And second, do you have a comparable figure expectation for this year?

Yes. Hi, Haendel. It's Michael. So, let me just start by saying, that really the entire company has been focused around these innovation initiatives for the last several years, and we now have created this foundation that really is going to deliver long-term value creation of the portfolio for many years to come. With the materials that we put in that November investor presentation highlights this technology evolution of this platform, really has been focused on creating the mobility and efficiency in the operating model while the seamless experience to our customer improves. All in, we've identified about $60 million in NOI improvements with about $35 million of that already achieved over the past several years. The early stages of this was clearly more expense focused, and that shows up in our numbers when you look at the low expense growth. And that's mostly in the payroll and some of the R&M accounts over the last couple of years. Going forward, we've identified and we expect about another $25 million. In 2023, we delivered about $10 million in NOI improvement, and about two-thirds of that was on the expense categories, primarily in the payroll accounts, and a couple of million dollars of that was in the revenue front. Specific to 2024, we've layered in another $10 million included in guidance with about $7.5 million in other income accounts. And this is realized growth as the annualized number from all of these initiatives is greater because some of these are back half loaded, meaning I only get about half of the benefit this year. So, overall, I guess, I would just say is this operating foundation is almost in place, and you really should expect that the future years are going to continue to have more revenue enhancement opportunities. But the reality is, I mean, we're never really done with this pursuit of operational excellence. It's something that's wired into the DNA of our company, and I'm sure as this year goes on, we're going to identify new things for future years as well.

Very helpful. Thank you.

Our next question is going to come from Rob Stevenson from Janney. Please go ahead.

Good morning, guys. Alec, can you talk about how robust the market is for dispositions in quality of life areas like urban Seattle, San Francisco or markets with ongoing bad debt issues like LA, are things trading and where are they pricing versus a few years ago if they are?

Yes. Thanks, Rob. It's Alec. There's almost no activity in the markets listed. I mean, we're we test from time-to-time. Not saying we wouldn't sell something, but right now, I don't, I couldn't tell you what market cap rates are because they just haven't been frayed. So, it is really frozen there. So frankly, we've concentrated our efforts elsewhere.

And I mean, is that just hold-on for a couple of years, hope that the cities get their act together, or is there something else just simply buy lower price capital that will allow that to sort of come back or are there you anticipating some sort of level of permanent impairment on some of those markets and submarkets?

No, I think all of the things that you mentioned are likely to happen. There is a tremendous amount of capital on the sidelines. These cities are still great cities. The cities themselves are doing a lot, particularly in San Francisco and Seattle to improve the quality of life. I mean, they're making some really serious headways. And as Mark, talked about, we expect them to recover as the jobs recover. But even absent that, we're at 96% occupancy. It's just investors sentiment's really negative right now, and, we think that there are better opportunities elsewhere, and we're frankly a buyer of what it sounds like people would transact right now.

And, Rob, just to add to that. I mean, these markets, Seattle and San Francisco, particularly though, you could think about downtown LA too. We may have powerful drivers. For us, it's like we talked about New York when everyone was down on New York City, and we were positive on it still. That recovery has been vibrant. I think it's the same pattern here. It's not a matter of if, it's a matter of when, and I think these markets will recover greatly on the rental side over the next few years. What we shied away from on this call is, excessive enthusiasm too early in the year when you're not really into the leasing season yet, in markets that do have volatility associated with them. So, I don't feel any sense of permanent impairment in these markets at all. I think that you're going to have great rental growth. You're going to have a recovery that's pretty strong in these markets. And you are likely, but not certain to follow a pattern like in New York, where again, the sales market has some deals in it in New York, and they're trading really well. And so, I'm not sure why in a few years, San Francisco and Seattle wouldn't trade very well as well, but it's just going to take some time. And, again, our hesitancy here is really around the timeline for this, not the occurrence of it. And I think it's a catalyst for our investors. I think having, a portion of the portfolio and unrecovered markets with rents lower than they were in ‘19 and incomes a lot higher is a huge potential piece of kindling wood to our earnings in future years.

Okay, that's helpful. And then lastly for me, Bob, what's the $0.06 difference between day REIT and normalized FFO guidance? Is that one or two large items that you're expecting or a bunch of small ones given what you know today?

Yes. There's one larger contributor which I'll talk about, which is, advocacy costs. So, we are forecasting higher levels of advocacy the cost in 2024, given that it's an election year and some of the ballot sheet, ballot initiatives, sorry, that we are facing, which is not atypical as in other election years. And then the remaining pieces are typical forecast for pursuit costs and other items.

Is that advocacy in California or is there other markets as well or is that entire spend out there?

It's predominantly California.

Okay. And is there anything, I guess, related to that that you're especially worried about this cycle? I mean, I know that a lot of this stuff keeps being put on every other ballot or every ballot, but I mean is there anything that's looking like this year or 2024 is the chance that it really passes, it would wind up being a negative for you guys?

Rob, it's Mark. I mean, there's negatives and there's positives in the regulatory area. The ballot measure is by far the biggest point of focus in the industry. And just to remind everyone, this has been on the ballot twice before. The citizens of California rejected it by 20 percentage points each time. The industry is well organized. We're going to make the same good arguments about supply being the solution, more rental voucher funding being the solution. And to be honest, the Governor Newsom and the legislature have done a lot of supply things with the accessory dwelling unit legislation, with some of the zoning reforms. And so to be honest, when I turn to the positive on the regulatory side, people would hear us. They hear the industry's point about supply, about zoning reform. Governor DeSantis, obviously, couldn't be more different than Governor Newsom. He has done some great things in Florida as it relates to housing policy as well and zoning reform to allow more affordable housing to be built. Governor Hochul in New York was trying the same thing and got a lot of resistance, but we hope that is still in place. So California is, to answer your question, the focal point of us in the industry at large this year. But markets like New York and, Massachusetts and Colorado, there's always dialogue going on in those markets, but we're well organized to have that conversation. And I think policymakers, by and large, understand that supplies the answer, not rental regulation. That's what I think is the positive here. You hear about that a lot more in our conversations, and the reaction to rent control is, something that we talk through and, you get a lot of people calling the other direction after they've heard the arguments.

Okay. That's helpful. Thanks guys. Appreciate the time.

Thank you.

And our next question is going to come Anthony Powell. Please go ahead.

Hi. Good morning. A question on new and renewal lease spreads and the leases. I'm curious, what's the absolute, I guess, rent these two group consultants are paying in terms of both gross and net effective? I'm trying to understand better about what, the actual numbers are from these two, customer groups?

Hi, Anthony. This is Michael. Can you ask that again? I'm not sure I'm following the absolute rent part of the equation.

Yes. So, in terms of this new renewal leases, absolute rent, is there a big difference between the two? Are customers paying, lower or higher of renewing new leases? I'm trying to get a sense of the absolute pricing difference between the two groups of customers.

Yes. I think when you look at it on the new lease side because of the concessions that we're offering in some of them, I think it lowers, like, the net effective rate when you look at the absolute average of all the leases that we wrote versus the renewals.

And one thing to keep in mind, too, Anthony, is when you're looking at the spread so if you're starting with market rate rents, right, and looking at market and that's kind of your pricing trend or whatever. Spreads can vary materially depending on who is in the mix of, moving in and moving out. So, if I have lived in a unit for one year and got a big concession, as Michael used an example, in an expansion market, and I happen to be the one renewing, then that spread can be very different than the absolute. So, just keep that in mind, as you look at any of these spreads. And then particularly keep it in mind as you think about seasonal periods, like the first quarter and the fourth quarter where transaction activity is really low. You can have even more volatility in the number.

All right. Thank you. And maybe one more on transaction activity. Do you expect to see any portfolio deals, later this year? Or do you expect your deal activity to be more single asset as we had been recently?

Anthony, it's Alec. I don't know if I expect to. I certainly hope to and I think we probably will, but it remains to be seen. But there's some things out there that we've heard about that might be interesting, and we'll certainly be very actively pursuing them.

Thank you.

Thank you.

And our next question is going to come from Linda Tsai from Jefferies. Please go ahead.

Hi. Thank you. Just one question. In your prepared comments, you highlighted seeing stability and pullback in Seattle and San Francisco. Could you discuss that dynamic more? Is this volatility associated with job loss and return to work mandates or maybe just provide some examples of what drives this push and pull?

Yes. Hi, Linda. This is Michael. So, I think clearly job growth is one of the catalysts that does that. The migration patterns also influence that. So, where you see a lot more of your move-ins coming to you from within the MSA, that's usually deal seekers. Those are people that are responding to see in the concessions and either breaking their lease where they were to move into it. So, it just you just haven't seen, like, the sustained momentum that you would expect based on seasonal trends. I think last year, you saw some of those layoff announcements. You saw a lot of ambiguity around return to office where people were just waiting to see what their employer was going to do, before they decided to make any kind of relocation decisions to get nearer into where their offices were. I still think some of that exists in the marketplace today. But what we did see and what we see right now is that the setup in both of those markets has positioned us with good occupancy. We are starting to pull back concessions. The marketplace, still has concessions in them, and we'll just watch and see that build as we get in towards March and April to see what pricing power really looks like. But there's a lot of factors that are going into why a market all of a sudden kind of stalls out and whether or not it shows you sustained momentum more in-line with seasonal trends.

Thank you.

And I have no further questions left in the queue. I'll turn it back over to Mark Parrell for closing comments.

Thank you all for hanging in there on this long call. We appreciate your, interest and your time today. Good day.

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