AvalonBay Communities Q1 2026 Earnings Call - Development NOI Ramp and Aggressive Share Buybacks Drive Outperformance

Matt H. Birenbaum, Moderator/Operator, AvalonBay Communities: Thank you, operator, and welcome to AvalonBay Communities first quarter 2026 earnings conference call. Before we begin, please note that forward-looking statements may be made during this discussion. There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There’s a discussion of these risks and uncertainties in yesterday afternoon’s press release, as well as in the company’s Form 10-K and Form 10-Q filed with the SEC. As usual, the press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms which may be used during today’s discussion. The attachment is also available on our website at investors.avalonbay.com, and we encourage you to refer to this information during the review of our operating results and financial performance.

When we get to the question-and-answer session, we kindly ask participants to limit their questions to one and rejoin the queue if you have any follow-up questions or additional items to discuss. With that, I will turn the call over to Benjamin Schall, CEO and President of AvalonBay Communities, for his remarks. Benjamin?

Benjamin Schall, Chief Executive Officer and President, AvalonBay Communities: Thank you, Matt, and thank you everyone for joining us today. I’m here with Kevin O’Shea, our Chief Financial Officer, Sean Breslin, our Chief Operating Officer, and Matt H. Birenbaum, our Chief Investment Officer. As is our custom, we’ve also posted an earnings presentation, which Sean and I will reference during our prepared remarks before turning to Q&A. Starting with the key takeaways on slide 4, our first quarter results exceeded our expectations, driven by lower expenses, higher development NOI, and the benefits of our share buyback activity, which was not included in our original outlook for 2026. Our portfolio is well-positioned heading into peak leasing season with very low turnover, solid occupancy, and rents tracking as expected through the first 4 months of the year.

We are also benefiting from the ramp in development NOI in 2026, which will further accelerate during the year and into 2027. Leasing velocity at our projects in lease-up has been strong in the typically slower first quarter, which bodes well for the upcoming peak leasing season. During the quarter, we completed $340 million of dispositions and repurchased $200 million of our shares at an implied cap rate in the low 6% range. Turning to slide 5, same-store residential revenue grew 1.6% year-over-year, with occupancy up 10 basis points to 96.1%.

During the quarter, we started nearly $190 million of new development, with 2 starts in suburban New Jersey, and are on track for $800 million of planned 2026 development starts, with projected initial stabilized yields of 6.5%-7%. Our performance in Q1, both operationally and from a capital allocation perspective, sets us up well for the balance of the year. Slide 6 details the components of our favorable first quarter Core FFO per share results relative to our initial outlook. Of our $0.02 of NOI outperformance, 20% was revenue driven and 80% was attributable to lower operating expenses. On the expense side, certain operating costs budgeted for the first quarter are now expected to be incurred over the balance of the year.

Other drivers of our outperformance for the quarter were $0.01 of favorable development NOI from our leased up communities, as well as $0.01 from our share repurchases in the quarter. Looking ahead, slide 7 highlights several factors that continue to support apartment demand and our operating outlook as we move through 2026. First, market occupancy in our established regions remain solid, supporting near-term fundamentals and allowing us to enter the peak leasing season with relative strength. Second, our customers continue to experience healthy wage growth, which will support rent growth throughout the year. Third, the supply backdrop remains very constructive in our markets, with new market rate apartment deliveries expected to stay at historically low levels for the foreseeable future. fourth, the economics of renting versus home ownership remain very favorable.

During the quarter, the percentage of customers leaving us to purchase a home declined to 8%. Taken together, these factors give us confidence in the resiliency of apartment fundamentals and in the positioning of our portfolio as we move through the balance of the year. Slide 8 highlights the strength of our operating and development capabilities to drive differentiated internal and external growth in the years ahead. On operations, we continue to leverage our scale and leadership in centralization, technology, and AI to deliver superior service for our residents and drive operating efficiencies and incremental NOI. Our forecast has us on track to generate $55 million of annual incremental NOI by year-end, our original Horizon One target.

Our next set of priorities include the further deployment of AI solutions and our seamless digital self-service experiences, additional enhancements to our technology and data platforms, and further optimization of neighborhood and centralized staffing, all on our way to our Horizon Two target of $80 million of annual incremental NOI in the coming years. On development, our sector-leading platform is poised to contribute meaningful earnings and value creation in the coming years with three and a half billion dollars of development underway with a projected initial stabilized yield of 6.3% at quarter end.

These investments were match funded with capital raised over the past three years at a weighted average initial cost of 4.9%. This spread is well within our strike zone, targeting yields of 100 to 150 basis points above our cost of capital and underlying market cap rates. These deals were conservatively underwritten on an untrended basis, and in many instances are seeing favorable construction cost buyouts relative to pro forma. These communities will also deliver into an operating environment with meaningfully less new supply. With this tailwind of activity, we continue to expect a meaningful ramp in development NOI and are projecting $47 million of development NOI this year, increasing to $120 million in 2027. Turning to slide 9.

We had three dispositions closed during the first quarter, and we continue to deploy capital into accretive share repurchases. Beyond crystallizing the significant public-private disconnect in asset values, selling 40-year-old high rise assets improves our go forward cash flow growth profile, particularly after factoring in CapEx. Including our repurchases last year, we’ve now repurchased $690 million of our stock and have $914 million of remaining authorization. In summary, we have a high quality portfolio, well-positioned heading into the peak leasing season, operating and technology initiatives that continue to drive internal growth, and a development platform that we expect to contribute an accelerating stream of earnings over the next several years. With that, I’ll turn it over to Sean to walk through the operating environment and leasing trends in more detail.

Alexander Goldfarb, Analyst, Piper Sandler8: All right. Thank you, Ben. Turning to slide 10 to address recent portfolio trends. Year-to-date asking rent growth has been pretty consistent with historical norms and our original expectations for this year. Since January 1st, the average asking rent for our same-store portfolio has increased in the high 4% range. Importantly, the growth we’ve experienced this year is well ahead of what we realized in 2025, setting us up well for better rent change as we look forward. Turning to slide 11. Our same-store portfolio is well positioned as we look ahead to the peak leasing season. Occupancy has been north of 96% and trending modestly ahead of our budget. Turnover remains well below historical norms.

It even ticked down 50 basis points compared to Q1 of last year, supported by a variety of factors, including a historical low 8% of residents moving out to purchase a new home and declining new supply in our established regions. As a result, the number of homes available to lease has been lower than last year and has contributed to the 260 basis point ramp in rent change we’ve experienced since the beginning of the year. Looking forward, we expect a continued acceleration in rent change. Renewal offers from May and June were delivered at an average increase in the 5%-5.5% range, which is about 100 basis points higher than where we sent offers for February and March.

In terms of regional color, the stronger performers continue to be the New York metro area and Northern California, both of which produced revenue growth slightly ahead of our budget through Q1. Within the New York metro area, the strongest markets were New York City and Northern New Jersey. In Northern California, San Francisco has been the strongest market, followed by San Jose and then the East Bay. The strengthening we’ve experienced in San Francisco and San Jose started to spill over into the East Bay this past quarter. The Mid-Atlantic also outperformed our revenue budget for the quarter, albeit modestly, with slightly higher occupancy across the region and greater other rental revenue.

With the hangover from job cuts over the past year starting to fade, we believe the meaningful reduction in new supply will help support the stabilization of the Mid-Atlantic region sometime this year. I wouldn’t say it’s turned the corner just yet, but it’s definitely more stable than mid to late last year. In terms of the weaker markets, Boston, L.A., and Seattle modestly underperformed our revenue expectations during the quarter, and the other regions were collectively on plan. Moving to slide 12 to address our lease-up portfolio. We generated very strong leasing velocity of 32 per month during Q1, well ahead of our historical velocity of 23 a month. We generated that velocity at an average effective rent that’s slightly above our original pro forma.

It’s clear our customers value the new differentiated product we’re delivering in these various sub-markets and selected an average lease term that exceeded 15 months during the quarter. The occupancies that result from our leasing activity will continue to support the meaningful increase in development NOI projected for this year and into 2027, as Ben noted earlier. Overall, we’re off to a good start this year with same-store metrics trending at or slightly ahead of expectations, strong leasing activity at our lease-up communities, and the recycling of capital into buybacks at a compelling value. Now I’ll turn it back to our operator, Shamali, to begin Q&A.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, to get as many of your questions as possible, we kindly ask participants to limit their questions to only one, and you can rejoin the queue after with any follow-ups. Our first question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.

Jamie Feldman, Analyst, Wells Fargo: Great. Thanks for taking the question. I guess just, you know, if you could provide an update on your thoughts on, you know, hitting your new renewal and blend guidance for the rest of the year. You still have a pretty meaningful ramp. Can you just remind us what you’re thinking in terms of, one, kind of the math behind it and what kind of tailwind that gives you? Then as you think about the markets that are doing better, the markets that are doing worse, and you also didn’t mention the expansion markets, but how they fit into the story. Just, you know, what gives you comfort on keeping the guidance where it is and, you know, your ability to hit those numbers.

Alexander Goldfarb, Analyst, Piper Sandler8: Hey, Jamie, it’s Sean. In terms of the outlook, just to remind everybody what we said is we expected rent change to average 2% for the calendar year 2026, which reflected the first half forecast at 1.25% and the second half at 2.5%. Then in terms of breaking it out between move-ins and renewals, we essentially reflected move-ins being about 0 for the year and renewals averaging around 3.5%, blending to that 2%. As I mentioned in my prepared remarks, asking rent growth is pretty much tracking about what we expected. It’s actually slightly ahead just a little bit. Where we came out in the first quarter was slightly better than we anticipated, and we have good, pretty good momentum going into the second quarter.

Obviously, you can interpolate the math required for Q2 to get to the 1.25%, and we feel, you know, very confident that we’re in the right, you know, right strike zone, so to speak, in terms of hitting those numbers. In terms of the various markets, you know, what I would tell you know, consistent with my prepared remarks in terms of where the momentum is, it’s certainly the New York Metro area, as I mentioned. The Bay Area certainly has good momentum. It’s nice to see things start to spill over into the East Bay part of Northern California in the first quarter, which we sort of expected to happen. It typically lags behind San Francisco and San Jose.

You know, the expansion regions are, you know, performing pretty much collectively as expected at this point. Some are slightly ahead, some are slightly behind, but as a basket, they’re pretty much on track.

Jamie Feldman, Analyst, Wells Fargo: Okay. Thank you.

Alexander Goldfarb, Analyst, Piper Sandler8: Yep.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. Our next question comes from the line of Eric Wolfe with Citi. Please proceed with your question.

Eric Wolfe, Analyst, Citi: Hey, good afternoon. It looks like the percentage of available homes in April is down year-over-year, and you mentioned the very low turnover in April as well. My question is, if that allows you to be a bit more aggressive on asking rents and new leases going forward. Maybe just some thoughts on what the current data is telling you about pricing power into May and some of the early sort of results on new leases in May.

Alexander Goldfarb, Analyst, Piper Sandler8: Yeah, Eric, happy to take that as it relates to what we’ve been seeing. I would tell you that, based on what we saw in the first quarter, as I mentioned, and Ben also indicated in his prepared remarks, you know, we’re slightly ahead of our revenue plan. That’s a little bit on rate, a little bit on occupancy. As we look forward, you know, in terms of our expectation, again, if you interpolate the math based on what we needed in the second quarter to get to our 1.25% blended for the first half, and you start with April kind of in the high 1% range, almost 2%, I think we’re in good shape overall as we look forward.

In terms of the low turnover, the low availability, all that does continue to support slightly better pricing power. We’re certainly seeing that relative to what we experienced in 2025, where around this time of year, things started to soften. You’re starting to see those lines continue to spread further, which certainly bodes well for the rest of the leasing season in the second half of the year.

Eric Wolfe, Analyst, Citi: Got it. Thank you.

Alexander Goldfarb, Analyst, Piper Sandler8: Yep.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. Our next question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question.

Alexander Goldfarb, Analyst, Piper Sandler9: Yeah. Thanks. Just wanted to focus maybe a little bit on the dispositions and the buyback. You know, can you help us kind of frame out how, I guess, aggressive or how large, you know, you’d be willing to pursue, I guess, both sides of that equation, given the given the dislocation we’ve seen in apartment valuations of late?

Alexander Goldfarb, Analyst, Piper Sandler2: Yeah, sure, Steve. This is Kevin. I’ll offer a few comments. Others may wanna offer their own as well. I guess I’d start off by saying, you know, with respect to the buyback question, we are in a very strong position, as you mentioned, to create value through both development and share buyback activity, supported of course by our balance sheet and continued access to the asset sale in the debt market. In terms of how we’re thinking about the buyback activity we’ve done so far today and what we might do going forward, I’d probably frame it out with a few points. The first is, you know, buybacks and development are both highly attractive to us today, so it’s not a binary choice.

At current pricing, our stock implies a cap rate in the low 6% range, which makes repurchases attractive and immediately accretive. At the same time, development remains compelling for us, with projected initial stabilized yields in the mid-6% range or higher, while also driving longer duration earnings growth and portfolio refreshment. That’s important to us. Second, our capital plan for the year contemplated that we would be a net seller of $100 million, with roughly $500 million of dispositions and $400 million of acquisition activity.

Year to date, as you could see from the release, we’ve completed already $340 million of asset sales and $200 million of share repurchases, which has effectively replaced a portion of the acquisition activity that we originally had planned. The third point is looking forward, we are already marketing additional communities for sale. That’ll give us additional proceeds here. As those sales are completed, if our stock remains attractively priced, we would consider additional repurchases. To the extent we did so, we would do that instead of acquiring the remaining $200 million of acquisitions that are in our plan. We do so in a leverage-neutral basis. How much we might do beyond that, we’re certainly open to the idea of doing more.

We’re prepared to be nimble while also preserving our balance sheet strength and flexibility so that we can deploy capital to the incrementally the highest, best use that’s available to us. I wouldn’t put a single fixed number on how much more we could flex dispositions up to fund buyback activity. We can do a fair bit, quite a bit, I’d say. The ultimate level of activity will depend, in terms of buybacks, will depend on the timing amount of future asset sales, the valuation of our shares at the time, and the remaining capital gains capacity that we have. As you know from our prior discussions, we typically have, in a normal year, without engaging any special tax planning efforts, about $500 million in disposition capacity where we can keep the proceeds.

That’s essentially part of what we were thinking about with our plan this year. We do have capacity in that regard. Beyond that, we have a very clean tax position. We could use one-time levers to increase disposition capacity up and have that proceed available for any purpose, including a buyback activity. As I said, I wouldn’t put any fixed number on how much more we could flex it up beyond what’s contemplated in our plan by potentially repurposing proceeds to acquisition activity.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. Our next question comes from the line of Jana Galan with Bank of America. Please proceed with your question.

Jana Galan, Analyst, Bank of America: Thank you. Congrats on the strong start to the year. Just a question on the decision to maintain the midpoint of FFO guidance despite the $0.05 outperformance in the first quarter. I think, you know, you said close to $0.02 is the expenses that may be incurred later in the year, you’re also benefiting from the share repurchases being maybe a little bit larger and earlier. If you can kind of walk us through that.

Alexander Goldfarb, Analyst, Piper Sandler2: Sure, Jana. This is Kevin. We think affirming guidance is the disciplined and appropriate decision today. To be sure, as you point out, we are off to a strong start with revenue trends on track, a first quarter earnings beat, and completed buyback activity that should add a couple more cents of incremental earnings as the year progresses. At the same time, as you know, we’re still early in the year with peak leasing still ahead of us, and some of the Q1 beat was expense timing, as we’ve alluded to, not a full-year run rate change.

While full-year earnings are currently tracking modestly ahead of our original plan, we think it’s more appropriate to affirm full-year guidance today and revisit it on the second quarter call when we’ll have a much better read on the peak leasing season and the balance of the year.

Jana Galan, Analyst, Bank of America: Thanks, Kevin.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. Our next question comes from the line of John Pawlowski with Green Street. Please proceed with your question.

Alexander Goldfarb, Analyst, Piper Sandler1: Thanks. Matt, a question for you on the Avalon Sunset Towers sale. Are you able to share the cap rate both on your seller NOI as well as your best guess as the cap rate on the buyer’s NOI? I think you owned the property since the mid-’90s, I’m just curious what type of property tax reset would be felt on that property.

Alexander Goldfarb, Analyst, Piper Sandler3: Yeah. Hey, John. That is a very atypical transaction. You’re right, it’s a very old asset, early ’60s vintage or late ’60s vintage. You know, it really is not representative of where the San Francisco asset sales market would be today. There’s also quite a bit of overhang there with some regulatory upgrades that are gonna be required, seismic and sprinkler retrofits, which really was part of what drove us to sell it. The cap rate, kind of what we would talk about is a market cap rate, which would be kind of the buyer’s forward T12 we think was probably in the low 5% range.

That does provide an allowance for a certain amount of CapEx that the buyer’s gonna have to do related to that retrofit work. It doesn’t really map cleanly to anything else. I would say, you know, there are other assets we own in the city of San Francisco where I would say, given the loss to lease, that are, you know, that would probably be honestly in the low-to-mid 4% cap rate today. You know, if you think about it just relative to how to value the portfolio, that’s probably more, more typical.

Alexander Goldfarb, Analyst, Piper Sandler1: Okay. Sean, a question on two markets where their economies have been kind of stuck in the mud. Maybe a multiple choice question. D.C. and L.A., do you expect pricing power to either reaccelerate from here in the coming quarters, just muddle along, or get worse before it gets better in both D.C. Metro and L.A.?

Alexander Goldfarb, Analyst, Piper Sandler8: Yeah, John, good questions. A little bit of crystal ball questions, I guess. What I’d say is, as I see it today, based on what we know, things, you know, feel a little bit better in the Mid-Atlantic. You know, things were, you know, rough, you know, mid to late last year in the Mid-Atlantic. What we can tell in terms of the feedback from our teams, both on the ground in terms of, you know, people coming through the front door in terms of leasing or people contacting our renewals team, definitely not as much angst in the system in terms of prospective renters and/or existing renters.

Executing renewals. We’ve been able to peel back on concessions a little bit. You know, the average asking rent year-over-year is about flat right now. We thought it’d be down a little bit. I’d say it feels a little bit better in the Mid-Atlantic. You know, the job worries have faded. I’d say maybe there’s even, in certain sub-markets, probably more defense sector-oriented, maybe a little bit of optimism. If I had to pick one of the two right now, I’d say we’re getting a little more anecdotal feedback and on-the-ground data that supports the Mid-Atlantic probably being a little bit better as we look forward. You know, I wouldn’t say that it’s, you know, overly positive compared to, you know, the Bay Area or something, but I think it looks pretty good.

In L.A., you know, L.A. has been tough, as you well know. There’s not necessarily a near-term catalyst other than potential investments that relate to, you know, World Cup, Olympics, things like that, kind of bringing in jobs. They did pass some tax subsidies, as you may know, last year to help promote entertainment content being developed in L.A., broadly across California, but mainly L.A. That hasn’t really trickled in just yet, but it’s still early. I would say we haven’t yet seen a catalyst quite yet in L.A. other than very diminished supply, but we’re looking for it on the demand side.

Alexander Goldfarb, Analyst, Piper Sandler1: Okay. I appreciate all the thoughts.

Alexander Goldfarb, Analyst, Piper Sandler8: Yeah.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.

Austin Wurschmidt, Analyst, KeyBanc Capital Markets: Thanks. Good afternoon. Sean, maybe sticking with you. You had referenced the operating momentum you’ve seen into the second quarter. I guess, was there a, you know, any specific pickup in demand into April that drove the acceleration in lease rate growth after, you know, what kind of appeared to be a fairly modest improvement from 4Q to 1Q or just anything specific, I guess, as we get into the early part of the spring leasing season and that drove the improvement?

Alexander Goldfarb, Analyst, Piper Sandler8: Yeah, I mean, I wouldn’t necessarily point to, you know, significant macro factors, Austin. I think it really is kind of your regional drivers for the most part. You probably just heard my commentary on the Mid-Atlantic and why that’s feeling a little bit better. Yeah, there’s been, you know, good momentum in the New York Metro area for obvious reasons there in terms of the employment growth that we’ve experienced there and in other markets. The softer places are, you know, we would’ve expected, I mentioned L.A., you know, still, you know, last 6 months, you know, basically no job growth in Boston, very little in Seattle. I think it’s more of a regional story in terms of where you’re seeing the momentum versus not, as opposed to a macro shift one direction or another at this point.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. Our next question comes from the line of Adam Kramer with Morgan Stanley. Please proceed with your question.

Adam Kramer, Analyst, Morgan Stanley: Hey, great. Thanks for the time, guys. Just wanted to ask, maybe it’s a little bit more of a philosophical, academic question, but I know in the past, we’ve sort of focused on job growth. I know you guys have had job growth charts in the deck for some time. Notice today sort of has a wage growth chart in there. You know, obviously two different data points can mean different things and sort of work together. Wondering, again, maybe a little bit more philosophically, you know, if you sort of think one is a better indicator of apartment demand, be it wage growth or job growth.

I guess maybe a second part to that question is, just with regards to job growth, I think if I remember correctly from the last deck, there was sort of a, sort of an increase embedded into the assumptions, I think sort of using the NABE forecast for 2H. Wondering if that’s sort of still the assumption that you guys are working under, that there’s gonna be that uptake in job growth in the second half or maybe there’s a different forecast out there now?

Benjamin Schall, Chief Executive Officer and President, AvalonBay Communities: Hey, Adam, this is Ben. I’ll start us off there. You know, in terms of, you know, drivers of rental demand, it is both, right? It is both jobs and wage. We very much look to total income growth as the drivers of rent growth over time. To your second question, you know, our guidance and our reaffirmed outlook for this year is based on sort of an economic environment that we were experiencing in the second half of last year and sort of continuing into the first quarter. You know, we weren’t, our outlook was not based on any inflections looking forward.

Alexander Goldfarb, Analyst, Piper Sandler8: Really the two main drivers that we talked about, you know, being different in the second half of the year, one was the cumulative benefits of lower levels of supply, which as we’ve noted, is, you know, now down to, you know, 80 basis points in our established regions. The second is just the dynamic of softer comps in the second half of the year, which you can see on one of the presentation slides. Those are the main drivers. We naturally do look at job forecasts. You know, those are tough to peg month to month. We’ve generally looked at NABE. NABE’s forecasts are down some. When we put the pieces together, it doesn’t change our outlook for the second half of the year.

Given Sean’s commentary and our start to the first 4 months are feeling pretty good about our progress so far and the setup for peak leasing season and the remainder of the year.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. Our next question comes from the line of Rich Hightower with Barclays. Please proceed with your question.

Alexander Goldfarb, Analyst, Piper Sandler6: Hey, good afternoon, guys. To ask a question on development and, you know, just given the progress you’re seeing year to date, I think Matt mentioned that construction costs, you know, are maybe a little more attractive here and there versus original underwriting. How quickly can you possibly ramp up the development pipeline given all of the moving parts and of course, other, you know, potential uses of available capital, you know, maybe to increase the development start number or, you know, what’s the lag on that sort of a process internally?

Alexander Goldfarb, Analyst, Piper Sandler3: Sure. Hey, Rich, it’s Matt. It’s always a bit of a combination of what I’d say is bottom-up and top-down. Bottom-up is the deals themselves. You know, at any given point in time, we have a significant pipeline that we’re always managing, you know, through entitlements, through final design and permitting. At the end of the first quarter, I think our development rights pipeline was about $4 billion, a little more than that, $4.2 billion. You know, through the normal course of time, those deals would bubble up, you know, over the next couple of years to being ready.

You know, then there’s the top-down, which is, you know, how are they underwriting and what is our cost of funds and what are our other alternative investment uses and, you know, what is the capital allocation decision we’re gonna make? You know, we do focus a lot on preserving flexibility, and I think we do a really good job with that. We would have the ability to dial up development, you know, more, whether that’s next year or even later this year if, you know, if conditions are favorable and it’s the right capital allocation decision. The other thing I would say is that in addition to our own pipeline, most of that $4.2 billion is kind of AvalonBay development.

We also have our Developer Funding Program where we provide capital to third-party merchant builders. I think maybe 5 of the 30 deals or 25 deals we have under construction today are DFP deals. Those deals we can ramp up even more quickly ’cause in those cases, somebody else is doing all that early pre-work and it’s ready and just looking for capital. There’s a lot of that business out there right now. Most of it doesn’t underwrite, which is why, you know, you’re not seeing start activity, you know, pick back up in any meaningful way, we like that. You know, we are very consciously trying to take a larger share of what is a shrinking pie of development activity, we think we’re well-positioned to keep doing that.

Benjamin Schall, Chief Executive Officer and President, AvalonBay Communities: Yeah, Rich, just to add on to Matt’s commentary. At points in the cycle like we’re in now where others are pulling back, but we’ve got a set of competitive advantages and a cost of capital that’s differentiated, it also allows us to structure deals more optimally. When Matt talks about, you know, having $4.2 billion in a development pipeline, you know, we control that at a very low cost. We do see that shift, and we’ve seen that in this environment, which we’re able to get control of land with much more flexibility in today’s environment than in past environments.

Alexander Goldfarb, Analyst, Piper Sandler2: Rich, just Kevin to add on. We do have the financial flexibility to lean into those opportunities should they manifest. You know, our access to the loan market is excellent. We price 10-year debt in the low 5% range. We have access to the transaction market. We just sold $340 million of 40-year-old assets at a 5.4% cap rate. We could sell more representative assets at a lower cap rate. That would give us an opportunity to fund accretively deals, you know, development projects that might stabilize in the mid-60s if there’s more of that that we wanna have as a quick start here and to lean into.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. Our next question comes from the line of Haendel St. Juste with Mizuho Securities. Please proceed with your question.

Haendel St. Juste, Analyst, Mizuho Securities: Hey, guys. I was looking earlier at the turnover chart in your report. It’s pretty striking how we’ve gone from almost 60% back in 2009, 41% a year ago, and sitting here in the low 30s today. Understanding some of that is the affordability dynamics you laid out, some may be demographics, some of your operating platform. I guess I’m curious, as you think about it and as you’ve looked at it, is this level in the low 30s sustainable? Is it a new norm? Curious on perhaps what you feel the more appropriate longer-term or intermediate term way to think about turnover over the next year or two. Remind us again what’s amended in the guide for this year. Thanks.

Alexander Goldfarb, Analyst, Piper Sandler8: Yeah. No, this is Sean. I’ll take that one. In terms of the turnover rate, the one thing I would try to parse out a little bit is the seasonal shifts here. That 31% is really a Q1 number. Tends to be one of the lower quarters of the year. If you looked at it on an annual basis, you know, the last couple of years we were kind of in, you know, mid-40s and then low 40s. Our expectation for this year is we remain in the low 40s. There’s a number of different factors that, you know, really drive turnover. Some of it relates to substitutes, which includes the availability of for sale product. That is one sort of macro factor we don’t see changing anytime soon.

Even if you see rates come down some, just the available inventory is not there across especially our established regions. We think that remains certainly a tailwind or at least a neutral impact on the business for the next, you know, 2 years, at least the foreseeable future. The other thing that comes to mind in terms of substitutes is other available supply. That certainly has ticked in our favor the last 2 years, coming down to historical levels and projected for the next 1 or 2 years to dip down even further. You know, the substitute factor isn’t really there. The rest of it really comes down to kind of normal life events. That’s the stuff that you really can’t control.

Whether it’s people getting married, people getting divorced, people having children, taking care of parents, multi-generational, things like that come and go. That’s typically embedded in that data, year in, year out. I think the primary things that tend to tick it up or down are the things that I mentioned in terms of other options within a market, the life stuff just continues to happen. I don’t think there’s a lot that I would point to that would tell you that we’d see a meaningful uptick in the next couple of years, based on what I know today in terms of those particular factors. It takes a while to build new multifamily. Takes a long time to build and title single-family in these markets.

We got a pretty good runway for 2 years on that point.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.

Alexander Goldfarb, Analyst, Piper Sandler4: Good afternoon. Thanks a lot for taking my question. I’m here with Amy Provan. On the renewals, nice acceleration there. What’s driving that? Is that in line with your expectations? How have renewal negotiations trended recently? Thanks.

Alexander Goldfarb, Analyst, Piper Sandler8: Michael, this is Sean Breslin. Overall, in terms of renewals, we’ve seen, you know, nice acceleration this year, as we indicated in our earnings release in terms of the movement from the first quarter into April. I also mentioned earlier in response to a question that both occupancy and lease rates are blending to slightly ahead of our original budget. You know, we’re in pretty good shape there overall. In terms of the various markets, for the most part, you know, we see a seasonal uptick in asking rents. Renewals tend to drift up behind it. The markets that I mentioned earlier that are the stronger markets tend to see a little nicer pickup as compared to some of the ones that have been softer, as I mentioned, like Boston, L.A., and Seattle.

You know, we’ve seen good movement across most of the regions, with a few exceptions, and it’s slightly ahead of our original expectation.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Alexander Goldfarb, Analyst, Piper Sandler: Hey, good afternoon, and thank you. Going to the lease-ups, the pace of lease-ups that you had, and certainly, you know, we’ve seen similar from private developers. If new rents overall are still sort of muted, but the pace of leasing is exceeding what normally would be a normal monthly pace, how do we think about this as far as you talked about, like, sort of only two shout-out markets, New York and Northern California, and yet a lot of your development is in other places. How do we think about the pace of leasing versus still the muted rents overall? Is it just heavy concessions or what’s the read-through on why lease-ups are so strong, yet rent, you know, pricing is still soft?

Alexander Goldfarb, Analyst, Piper Sandler8: Alex, it’s Sean. I’ll make a couple comments and then Matt can chime in here. On that lease-up basket for the quarter, that’s nine communities in there. Just to give you a little bit of insight what’s in that basket. There’s four in New Jersey, one in Charlotte, two in the Mid-Atlantic, one in South Miami, one in Austin. Those are the nine. I think in general, what we’ve seen is that in these submarkets, you know, people are really compelled by the product that we’re offering in many of these cases. I’ll let Matt talk about New Jersey. In terms of the concession, the concessions and stuff, I mean, we’re talking about people choosing, on average, a longer lease term over 15 months, and we’re doing, like, six weeks free, so it’s around 9% or so.

That’s not terribly different from what we would normally do. I think it’s really about the product. I’ll let Matt talk a little bit about what we’re doing with some of the product here.

Alexander Goldfarb, Analyst, Piper Sandler3: Yeah. Hey, Alex. you know, as Sean mentioned, it’s really a combination of offering a compelling product, in many cases, in submarkets that just have not seen much new supply in a long time. you know, a lot of it is the geographic mix. you know, where most of the development NOI is coming from is from the 4 New Jersey deals plus South Miami. Those are the ones where the rents are quite a bit higher than, you know, than the other markets that Sean mentioned. you know, in most of those cases, that’s really what it’s about.

You know, there’s plenty of supply in South Florida, but not in a location like South Miami, where, you know, that community is over a brand-new The Fresh Market on the kinda south/east side of U.S. Route 1. You know, all the competition is in kinda other neighborhoods that don’t have the same walkability, that don’t have the same schools. You know, similarly, you think about New Jersey. Give you one example, Avalon Wayne, where we have both townhomes and flats. That’s the first new product Wayne has seen in probably 35 years. That’s very much a part of our development strategy. When you look at, you know, our 2 starts this quarter, one of them is Saddle River.

That’s another place, you know, seven-figure home values up there in Bergen County and, you know, another place that hasn’t seen any new multifamily in, you know 2 generations. Again, it’s part of the same story where we really are getting an outsized share of the demand that’s there because of the differentiated and compelling nature of what we’re offering.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. Our next question comes from the line of Brad Heffern with RBC Capital Markets. Please proceed with your question.

Brad Heffern, Analyst, RBC Capital Markets: Yeah. Thanks, everybody. Sean, just to follow on that average lease term number that you’ve given a couple times over 15 months, does that come from you just nudging people in that direction to lower expirations in the off-season, or is there something that’s driving, you know, a broader shift of tenants away from selecting just a normal, you know, 1-year lease term?

Alexander Goldfarb, Analyst, Piper Sandler8: It’s a little bit of both. The season that you’re in, and the expiration profile that we want in the subsequent year does matter. You know, it’s nice to see in some of these markets we’re, you know, releasing, you know, townhomes as an example, and some of these assets. Matt mentioned Wayne. South Miami has some townhomes. They’re bringing their kids. You know, they wanna get through the school year and have some time that on average, I would say we were nudging less in Q1 than normal, and people were picking up on the longer lease terms and product like that. A little of a combination of both, but it’s nice to see the preference for a slightly longer lease term come through from customers as well.

Brad Heffern, Analyst, RBC Capital Markets: Okay.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. Our next question comes from the line of Richard Anderson with Cantor Fitzgerald. Please proceed with your question.

Alexander Goldfarb, Analyst, Piper Sandler7: Thanks. Good afternoon, guys. I guess I wanted to sort of dive into a specific metric, that being, well, two, new and renewal lease rate growth. You mentioned, I think offers out, 5%-5.5% into the spring leasing season, and yet your guidance still has 3.5% renewal for the full year. Understanding you’re looking to gather more information before you revisit guidance, but is it fair to say that as you sit here today, that the flat new lease rate growth that’s embedded in the current guidance would be something greater than that based on the numbers you see today, but you don’t know yet what the future holds, so you’re sorta holding the line?

Is that a reasonable way to think of your mindset as it relates to that specific part of your guidance going forward?

Alexander Goldfarb, Analyst, Piper Sandler8: Yeah, Rich, it’s Sean. You know, in terms of the way we think about it is, one, what we have, you know, what we put forth in terms of our original guidance, I would say that we’re generally tracking on plan. I mentioned rates are slightly ahead. The Q1 leasing period, you know, has fewer expirations than Q2, Q3. You know, we see a nice trajectory as it relates to asking rent growth, we’re basically in a position where, you know, things look pretty good.

You know, we’re gonna have a much better set of data as we get through the second quarter, a lot more leasing to do with the expiration volume in Q2, that we would be able to revisit where we are at midyear and give you an update as to what our thinking is at that point in time. We’ve not seen anything yet that says we should be doing anything different other than what we, you know, reaffirm what we already said.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.

Alexander Goldfarb, Analyst, Piper Sandler0: Thank you. I wanted to know what you’re seeing in terms of the market concessions that your competitors are offering, if there’s been any noticeable change as you’re entering the peak leasing season? What you’re expecting in terms of offering concessions versus what you provided last year?

Alexander Goldfarb, Analyst, Piper Sandler8: Yeah. John, it’s Sean. The concession story is, you know, very much regional. What I would tell you is the markets that I indicated in my prepared remarks that are either a little bit stronger or a little bit weaker than what we anticipated, that’s where you’re gonna see the concession activity. Are concessions up in Boston and Seattle and L.A. year-over-year? Yes. Are they down meaningfully in Northern California, New York Metro area? Yes. It really depends on the market. You can go into submarkets where in Denver it’s very rough in certain particularly urban submarkets, and you’ll see 2.5 to 3 months free. You go out to the suburbs, it might be 6 weeks.

You know, you come here to parts of the Mid-Atlantic, and there are some places that it’s down to no concessions, and there are some places where it’s one month. It’s hard to generalize. Overall, I would say it really is a function of the various regions in terms of the specific data points that you’re looking for. As I said earlier, on a net effective basis for rate, things are pretty much tracking in line with what we expected. It’s modestly ahead, but not a lot.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. We have reached the end of the question and answer session. I would like to turn the floor back over to President and CEO, Benjamin Schall, for closing remarks.

Benjamin Schall, Chief Executive Officer and President, AvalonBay Communities: Great. Well, thanks for your questions today. Thanks for joining us. We look forward to visiting with you soon.

Alexander Goldfarb, Analyst, Piper Sandler5: Thank you. This concludes today’s conference. You may disconnect your lines at this time. We thank you for your participation.