Release Date: April 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: If I look at your April new lease growth of 0.1% versus the 1.6% at this time last year, I'm just trying to understand why it's a bit lower given you're in a better occupancy position. I think you said record retention, record low turnover. So just wondering if we could see that catch up over the next couple of months.
A: (Michael L. Manelis - Equity Residential - Executive VP & COO) Yes, I think one of the things you need to remember is that, relative to the first quarter in 2023, we are issuing more concessions right now. So that does impact a little bit of what you see in that new lease change. But clearly, when you just think about the normal rent seasonality curve, pricing trend or asking rents in the marketplace, we're seeing that sequentially build. And you're seeing that sequential improvement in kind of the new lease stats for April over March. So I think what you should expect for the next several months working our way probably even through the middle of the third quarter is that we will sequentially build new lease change up, and we will see that stability in kind of the renewal, achieved renewal increase performance. So you're right to call out that it's a little lower than norm, but right now we like the sequential improvement that we're seeing.
Q: All right. That's helpful. And then to your point on concessions, if we look at SF and Seattle, specifically, can you maybe talk about where concession usage is today versus, say, this time last year and if you're planning to dial that back further as we get into the peak leasing season?
A: (Michael L. Manelis - Equity Residential - Executive VP & COO) Yes. And I think I called this out even on the first -- or the call in January, that we made a strategic decision to increase the concession use, build up that occupancy in the fourth quarter, and really have been just pulling back the concession use as we worked our way through the first quarter. The most pronounced reduction actually came out of San Francisco. I think the offset to that reduction is that we also started to utilize some concessions in LA. So when you think about the sequential change from the fourth quarter through the first quarter, our concession use ticked down a little bit but not as much as what it would have been if we didn't start increasing some of the usage in the L.A. market.
Q: First question is on CapEx, Bob. It's been running, I think, last year about 3,700 unit, up to 3,800 this year, which is 40% higher than 2022. Is this a new structurally higher level of CapEx we should expect moving forward? Or should we expect a reversion to historical levels in the coming years?
A: (Alexander Brackenridge - Equity Residential - Executive VP & CIO) John, it's Alex. So there are a couple of factors at play there. One is -- and we talked a little bit about this last quarter, is leaning in more on some ROI projects, specifically renovations, some solar installations, some smart rent installations as well, and EV chargers. So there's some things that we can toggle up and down. They have ROIs on them, and they're discretionary. So that's in the mix.
Q: Okay. And then a question on markets. I mean, Michael or Mark, I guess, which markets when you're looking at just in terms of the absolute level of rents are you more concerned you're getting closer to hitting the affordability ceiling?
A: (Michael L. Manelis - Equity Residential - Executive VP & COO) Yes, John, this is Michael. So really, from the affordability standpoint, I wouldn't say we have any concerns at all. I mean we're not seeing a material shift. We still sit at about 20% rent-to-income ratios. And the range is fairly tight, running between like 18.5% to 24%. And the Southern California markets are sitting up at that higher range and they really historically have always been up at that level.
Q: Michael, I was wondering if you could just provide a little bit more commentary on the San Francisco and Seattle sort of strengths, and whether you can determine are those kind of folks that are returning to the market? Are they just kind of moving around the Bay Area and Seattle? Just how do we think about that demand that's picked up in the drop in concessions?
A: (Michael L. Manelis - Equity Residential - Executive VP & COO) Yes. It's a great question. So this is Michael. So I look at those markets right now and I think, clearly, we did see some marginal improvement with the migration patterns. We're still running with a slightly higher percent of new residents coming to us from within the MSA, meaning we're just trading around within the MSA. But we are marginally seeing some improvement, but we are elevated still from those historical norms. And I think we're going to remain elevated until you see the catalyst of either job growth or specific to like Downtown San Francisco really seeing kind of a more robust return-to-office policy.
Q: Great. Maybe the second question, I don't know if Mark or Bob, you want to take this, on the -- I guess it was on the late fee California settlement and the charge that you guys took in the quarter. Can you just kind of elaborate or say what you can say about that? And does this kind of put this issue to bed? Or could there still be lingering kind of issues that come out of that lawsuit?
A: (Mark J. Parrell - Equity Residential - President, CEO & Trustee) Steve, it's Mark. Thanks for that question. I mean we are still in active litigation, as you suggested in your comment or your question. So there's not a lot I can say. Just to give you a little background, this has been a case that's been going on for 10 years. About the amount of late fees, we just got a ruling from a judge that was adverse to our interest, so we adjusted the reserve. We are considering our appeal options. So to your point about adjustments, they could go up or down depending on our actions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
