Avalonbay Communities Inc (AVB) — Q4 2025 Earnings Call Transcript

Thank you, operator, and welcome to AvalonBay Communities Fourth Quarter 2025 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 is 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 in 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. And with that, I will turn the call over to Ben Schall, CEO and President of AvalonBay Communities for his remarks. Ben?

Thank you, Matt, and good afternoon, everyone. I'm joined today by Kevin O'Shea, our Chief Financial Officer; Sean Breslin, our Chief Operating Officer; and Matt Birenbaum, our Chief Investment Officer. Looking back on 2025, I want to begin by thanking our nearly 3,000 associates across AvalonBay for their dedication and commitment. It was a year that required us to be nimble, disciplined and highly focused on execution. Our teams rose to that challenge, consistently demonstrating our core values of integrity, continuous improvement and a genuine spirit of caring. As summarized on Slide 4, our operating results in 2025 reflect the quality of our portfolio, the proactive steps we've taken to optimize our portfolio's growth and the strength of our operating teams. Keeping existing residents satisfied and engaged was a clear priority, and that focus showed up in our results with high levels of retention and strong renewal acceptance serving as a ballast to overall revenue growth of 2.1% during the year. In fact, our turnover rate of 41% in 2025 was the lowest in our company's history. My particular thanks to our operating teams for delivering a near all-time high Mid-Lease Net Promoter Score of 34, one of the metrics we utilize to measure customer engagement and with clear connections to retention and renewal outcomes. Our regional development, construction and operating teams were also successful last year in sourcing attractive development opportunities using our strategic capabilities and balance sheet strength when many competitors were on the sidelines. All in all, we started $1.65 billion in projects with a projected initial stabilized yield of 6.2%. Funded with capital that we previously raised at a cost of roughly 5%, this investment activity sets the foundation for strong earnings and value creation in the years ahead. We have one of the strongest balance sheets in the industry and also pride ourselves on remaining nimble in capital sourcing and capital allocation. Among our peer set, we were the only ones to raise equity capital in size in 2024, having raised almost $900 million of equity on a forward basis at an implied initial cost of 5%. At the end of 2025, we are one of the few to repurchase shares in size, having acquired almost $490 million at an average price of $182 per share and an implied yield north of 6%. These repurchases were funded with incremental debt and the sale of lower growth assets, which, in turn, improves our long-term growth profile. In total, during 2025, we raised $2.4 billion of capital at an initial cost of 5%, positioning us to continue investing in our existing portfolio and in new development in 2026, which transitions us to this year with our key themes for 2026 summarized on Slide 5. First, on the operating side, while we expect fundamentals to improve as the year progresses, we are forecasting modest revenue growth of 1.4%, given the current job and demand backdrop. Given the supply backdrop, particularly in our established regions, we will not need much incremental demand to facilitate stronger revenue growth than that assumed in our budget. Irrespective of the macro environment, we will continue to utilize our scale, particularly our investments in technology and centralized services to drive incremental growth from our existing portfolio. We're now 60% of the way towards a target of $80 million of annual incremental NOI from our operating initiatives, with an incremental $7 million of NOI slated for this year. In terms of development earnings, we will have a meaningful uplift in development NOI as projects lease up during 2026, with earnings partially offset by the funding costs from the $1.65 billion of profitable developments we started in 2025. Kevin and Matt will further detail this dynamic. In terms of new starts, we are restraining activity to $800 million, consisting of 7 projects with an average development yield of between 6.5% and 7%, providing a strong spread to both underlying cap rates and our cost of funding. And finally, our Board approved an increase of our quarterly dividend to $1.78 per share, which after the 1.7% increase continues to position us with one of the more conservative payout ratios in the industry. Delving a little deeper into the setup for 2026, our outlook assumes a job growth environment that is slightly stronger than 2025 but still relatively modest. As shown on Slide 6, NABE is currently forecasting 750,000 net new jobs in 2026. As the year progresses, enhanced economic and policy certainty, the benefits from recent tax legislation and the potential for further Fed easing are among the catalysts that could translate into higher levels of business investment, improved consumer confidence and stronger hiring in our key resident industries. Turning to Slide 7, demand for apartments will also be supported by rent-to-income ratios, which are now below 2020 levels in our established regions, given that incomes have grown faster than apartment rents over the past few years. Demand will also continue to benefit from the relative attractiveness of renting versus home ownership, which is particularly acute in our established regions, where it's over $2,000 per month more expensive to own a home, given home price levels, mortgage rates, and the increases in other costs of homeownership, such as insurance and property taxes. And then there's the supply outlook with supply in our established regions expected at only 80 basis points of stock this year, levels we have not seen since the period coming out of the GFC. Given the challenges of getting entitlements and how lengthy the process is in our established regions, we expect this supply backdrop to serve as a tailwind for us for the foreseeable future. Balancing these dynamics, Slides 9 and 10 provide our outlook for 2026. We entered the year with a high-quality portfolio concentrated in suburban coasts with historically low levels of supply, a differentiated development platform and one of the strongest balance sheets in the REIT sector. While our guidance assumes modest growth in 2026, we are well positioned to generate meaningful earnings and value creation as operating fundamentals improve and development earnings ramp into 2027. Sean will now walk through our operating outlook in more detail.

All right. Thanks, Ben. Moving to Slide 11. The primary driver of our expected 1.4% same-store revenue growth is an increase in lease rates with incremental contributions from other rental revenue and underlying bad debt. We expect year-over-year revenue growth in the second half of the year to exceed what we produced in the first half, with slightly better job growth and an improved mix of jobs, the cumulative effect of lower supply, and softer comps supporting better rate and revenue growth. Our forecast reflects like-term effective rent change of 2% for the full year 2026, with the first half expected to average in the low 1% range and the second half improving into the mid-2s. In terms of recent leasing spreads, while Q4 performance was modestly below our expectations, it improved in January compared to both November and December. We expect continued sequential improvement in February and March, and renewal offers for those months were delivered in the 4% to 4.5% range. For other rental revenue, we're continuing to drive incremental growth from our various operating initiatives, but it will be partially offset by lower income due to select legislative actions in 2025. Excluding those headwinds, other rental revenue growth would have been closer to 5% versus roughly 3.5% reflected in our outlook. Turning to Slide 12 to address regional trends, revenue growth of roughly 2% in New York and New Jersey is primarily driven by healthy contributions from New York City and Westchester, which are projected to be in the mid- to high-3% range. Demand in Boston has been impacted by job losses in the back half of 2025. Our outlook reflects a projected year-over-year decline in occupancy of approximately 40 basis points, the majority of which is expected to occur in the first half of 2026, given our very strong occupancy level in the first half of 2025 and another 40 basis points from a projected year-over-year decline in rent relief payments. New apartment deliveries are projected to decline by about 30% to 4,000 units in the market, which will support better revenue growth when demand picks up. In the Mid-Atlantic, job losses in the back half of 2025 were the highest of our established regions. Our outlook reflects just under 1% revenue growth for the year, with negative net effective lease rate growth during 2026, offset by a roughly 20-basis point improvement in occupancy, approximately 30-basis point reduction in underlying bad debt and a 30-basis point contribution from other rental revenue growth. New apartment deliveries in the market are projected to decline by roughly 60% to 5,000 units. So the outlook could turn more positive in the second half of 2026, if we see an improvement in job growth. Moving to the West, Northern California is projected to produce mid-3% revenue growth, supported by built-in lease rate growth of 1%, relatively stable occupancy at approximately 96%, and continued healthy rate growth throughout 2026. New apartment deliveries are also projected to decline by about 60% to 3,000 units in that region. In Seattle, total employment was flat for the last 6 months of 2025. Our outlook reflects modest net effective rate growth throughout 2026, an approximately 20-basis point reduction in occupancy and a 40-basis point contribution from growth in other rental revenue. New unit deliveries are projected to decline by about 50% to 5,000 units, which will support improved performance as we move through the year. In Southern California, our outlook reflects revenue growth in the mid-1% range, driven by stable occupancy and approximately a 20-basis point contribution from lower bad debt, driven primarily by L.A., and incremental effective rate growth projected primarily in Orange County and San Diego. Unit deliveries in the region are projected to decline by about 40% to 11,000 units, with the most meaningful declines projected to occur in the L.A. market. Lastly, in our expansion region, Southeast Florida will remain the strongest region with revenue growth of roughly 1.5%. Denver suffered from the combination of 0 net job growth during 2025 and the delivery of approximately 16,000 new apartments. The outlook for 2026 reflects a challenging environment with modest job growth and another 9,000 new units being delivered into the market. Built-in lease rate growth is minus 1%, and rents are projected to continue to decline throughout the year. Moving to the outlook for operating expense growth on Slide 13, we expect same-store operating expense growth of 3.8%, 130 basis points above our organic growth rate of 2.5%. The items projected to drive growth higher in 2026 include the phaseout of property tax abatement programs, which will add roughly 70 basis points, and we settled a favorable property tax appeal in Q4 2025, which established a much lower assessment and led to a meaningful refund but is creating a 50-basis point headwind for 2026. The net impact of operating initiatives is contributing about 10 basis points as the added costs from our AvalonConnect offering are mostly offset by incremental labor efficiencies. In terms of the quarterly cadence of OpEx growth, we're expecting heavier growth in the first half of the year before it moderates in the second half, driven primarily by utilities, including the impact of credits received in the first half of 2025, benefits costs, and maintenance-related costs given our lighter spend in the first half of 2025. I'll turn it to Kevin to go deeper into our earnings outlook for the year.

Thanks, Sean. Turning to Slide 14. We show the building blocks of our 2026 core FFO per share. For internal growth, our guidance reflects a projected $0.04 increase from same-store NOI, partially offset by a $0.03 decrease from overhead, management fees, and JV income. For external growth, there are a few components. We expect a $0.10 increase in net development earnings, which I'll discuss further on the next slide, as well as a $0.07 increase from our Structured Investment Program and 2025 share repurchases, which consists of $0.02 from our SIP program and $0.05 from our recent buyback activity in 2025. These sources of external earnings growth are offset by a $0.07 decrease from refinancing activity across 2025 and 2026, and a $0.10 decrease from transaction activity. Here, I've emphasized that our recent elevated transaction activity and the associated impact on earnings reflects our having acted on some unique opportunities last year, including the timely sale of a portfolio of assets in a challenged submarket in Washington, D.C., and acquisition of a tailored portfolio of communities at a very attractive cost basis in Texas. We don't execute meaningful trades of that nature very frequently, but we do take advantage of them when opportunities arise. Of this $0.10 in earnings headwinds related to transaction activity, $0.06 is timing-related, driven primarily by the impact of selling assets in late 2025 and early 2026. The remaining $0.04 is the result of selling slightly higher cap rate assets, including in D.C., in order to better position the portfolio for stronger growth over time. Turning to Slide 15, development is expected to contribute $0.10, or 90 basis points, to earnings growth this year. This is lower than is typical for us and is driven by two factors. First, due to lower completion and ramping starts last year, the proportion of communities generating development NOI as a percentage of the total development underway is lower than normal. This is reflected in $0.33 of expected earnings growth from our 2026 development communities, as well as a handful of other communities that stabilized in 2025 and are now in our other stabilized bucket. It compares to incremental funding costs of $0.33, attributable to the 26 communities that are under construction today, as shown on Attachment 9 of our earnings release, and 8 communities that are expected to start construction in 2026. The second factor relates to a projected $340 million increase in construction in progress, or CIP, for 2025 to 2026. This temporarily dampens earnings growth in 2026 because our 5% initial funding cost exceeds our required capitalized interest rate under GAAP during construction, which is currently 3.7%. Therefore, we project a capitalized interest benefit of only $0.10 this year, which is a few cents lower than if our capitalized interest rate equaled our initial funding cost of 5%. Nevertheless, our decision to lean into accretive development does set the stage for further outsized earnings growth in 2027 and beyond as current development projects are completed and stabilized at yields in excess of 6%, and accretion steps up, which Matt will discuss more fully.

Exactly. Thanks, Kevin. As shown in the chart on the left on Slide 16, we started $2.7 billion in new development over the past 2 years at yields 110 to 130 basis points higher than the cost of capital sourced to fund those new projects, and we expect an even wider spread on the $800 million in starts we're planning for 2026. Because our development activity can vary substantially from year to year in response to market opportunities and capital market conditions, the flow-through of this activity to earnings can also vary in any given year. The majority of the earnings benefit is realized once all those new apartments are occupied. As shown in the middle chart on this slide, we are still early in this ramp-up in 2026 with occupancies growing from 1,812 homes in '25 to roughly 3,175 homes this year. We expect that to grow further still to over 4,100 occupancies in 2027. As you can see on the chart on the right, this translates into $47 million of development NOI this year and an incremental $75 million of additional NOI next year. Slide 17 takes a closer look at the expected 2026 lease-up activity, over 90% of which is coming from 11 communities, including 8 where we have already achieved first occupancy and have active leasing underway, and another 3 set to open in Q1 or Q2. All of these assets are in suburban submarkets and more than half of the occupancies are coming from the New York, New Jersey region and South Florida, two of our most stable regions with above-average expected same-store performance for the year. In addition to the earnings boost we expect from these communities in '26 and '27, we're excited about their long-term positioning for future cash flow growth as brand-new assets built and designed by us to respond to future demographic trends. We are including more larger format homes designed for working from home in our unit mix, including 8 communities with a BTR component, and many feature excellent infill locations walkable to nearby retail. And with that, we're ready to open up the line for questions.

You mentioned that renewals are going out in the 4% to 4.5% range. I guess, first, could you talk about whether you expect to achieve 4% to 4.5% on these renewals or if the take rate will be lower? And then second, what changed between now and the 2.5% you achieved on renewals in January? It just feels like there's been a bit of a jump over the last month or two. I'm just wondering what caused that.

Yes, Eric, I can talk a little bit about how we see the rent change forecast playing out throughout the year. But to your specific question, what I indicated in my prepared remarks is that the renewal offers for February and March were out in the 4% to 4.5% range. As you probably know, they always settle at something less than that, the historical range. The settlement is probably 100 to 125 basis points of dilution or something like that depending on the market environment. But that's what's happening with the renewal offers and where you think they might settle. In terms of the overall forecast, just to provide some commentary for '26, we're expecting it to come in around 2%, which is only about 30 basis points above what we actually realized in 2025. Our assumption is that the renewals will basically average about the same as 2025 sort of in the mid-3% range. We're expecting move-ins to improve by roughly 70 to 80 basis points in 2026 as compared to 2025, so that it comes in instead of being modestly negative, it comes in around flat for the year 2026. For context, and Ben referred to this as well, we are expecting a relatively similar economic environment as '25, but about 40% less supply. We are forecasting sequential improvement quarterly until we get to Q4. So that kind of gives you the broad picture of the full year. As it related to the first half versus the second half outlook, we are expecting the first half performance to be pretty similar to what we experienced in the second half of 2025, which was roughly basically 1.2%. We're basically about the same level as we come into the first half of 2026. In terms of the expected improvement in the second half versus the first half, it's really driven by four factors. First is, as Ben noted, a slight uptick in job growth, which is expected to occur in the second half of the year and a slightly better mix of jobs, but also importantly, the cumulative effect of 40% less supply and the absorption of some of the standing inventory from the end of 2025 carrying through the first half of '26. Lastly, it's just some softer comps as we get into the back half of 2026, given what we actually achieved in the back half of 2025. I hope that's helpful in terms of the trends we're expecting.

Yes, that's very helpful. I guess the question really is sort of how predictable do you think that sort of ramp is? Because it's just a bigger ramp right from the first half to the second half. And we've seen supply, I think, linger a bit longer than people expected, especially in some of these Sunbelt markets, which you're not in. But I guess the question is, how predictable do you think the sort of this impact from supply is going into the second half of the year? And how much does the supply or the impact of supply really drop off in the back half?

Yes. No, I mean that's what our forecast reflects. In part, why we're expecting the first half to be a little bit weaker is some of that lingering standing inventory in some markets that's carrying over from the back half of '25 through the first half of '26. Even though deliveries will be down meaningfully in both the first half and the second half, there is some standing inventory to absorb. Once that occurs, there will be much fewer options for people to choose from. As I noted, particularly on the move-in side, which is where we expect 60, 70 basis points of improvement relative to 2025, that's where you're going to see it the most. We expect renewals to be relatively flat if you think about it for '26 relative to '25. In terms of our confidence in that, that's what our models reflect at this point in time. We'll keep you updated as we go through the year. But that's part of the reasons why we look at it that way in terms of first half versus second half.

And Eric, on the demand side, just to give you some more color there, we're not assuming a huge pickup in terms of job growth this year. If you look at the NABE figures, ended the year at roughly 20,000 jobs per month. That is similar as we come into 2026 and then builds into the range of 70,000 to 75,000 jobs as we get into the back half of 2026.

Look, I know in '25, you guys had to take a couple of bites at the guidance and make some reductions. So as you thought about setting guidance for this year, maybe what lessons did you learn in '25 that you carried over this year? When you look at Page 14, I guess, are there some of those figures that you have more confidence in their upside? And I guess, which ones are you a little bit more worried about having downside risk?

Sure, Steve. I'll start on the guidance approach question and then others can weigh in on the upside and downside scenarios. Our approach to guidance remains as it has been. We go through a very detailed process, particularly at the beginning of each year, and it's also part of our midyear reforecast. We're looking at the best data that we have available at that point in time. We naturally think through upside and downside scenarios, but we use all that to come up with our best estimate looking forward over the next 12 months. Then importantly, we provide that transparency to investors so that you understand what's underneath those assumptions, and we can discuss those as the year unfolds. Yes. In terms of looking at Slide 14, the development earnings, I put that in the concrete category. Matt talked about this in his commentary; the earnings coming online this year are those projects that are under construction. A lot of them are already in their initial phases of lease-up. We've got pretty good clarity about how that income will roll in over time. We've prefunded that activity. So I put that in the category of fairly baked-in earnings to attribute to investors as the year progresses.

Steve, the only thing I would add is, for the most part, as it relates to the core same-store portfolio, I think the main question is the demand question. Depending on how you look at the outlook from an economic standpoint, the upside to downside is really tied to demand there. We saw job growth accelerate more quickly with the reductions in supply, as I mentioned in the Mid-Atlantic with supply coming down to 60%, that could give you a little bit of a springboard to better performance sooner than the second half. If that were the case, then you start to see more of that benefit accrue into 2026 versus 2027. Obviously, the downside scenario is if we saw a significant weakening in the environment from where we are today, then that would be sort of your downside case.

Okay. And then I guess a follow-up on the development, maybe just for Matt. I know you guys kind of cut the starts number in half this year, and you sort of raised the hurdle rate a bit. Is the reduction more a function of enough deals not penciling at that 6.5% to 7%? Or was it more of a conscious decision to just say, given the choppy environment, we just don't want to start $1.5 billion of projects even if they make the hurdle, just given the uncertainty in the environment today?

It's a mix of both. We start by examining the deals in our pipeline and assessing the size of the opportunities. There's also a top-down aspect that checks if those opportunities match our funding capacity and costs. With our developer funding program, we can see AvalonBay projects starting to come online one to four years ahead due to the entitlement process. Additionally, we can fund other developers, which allows those deals to come together more quickly. This year, we're anticipating less of that immediate business to underwrite. We are also looking for higher yields, which we are starting to see. Consequently, there's a shift in our geographic focus. This year, our starts are largely aimed at our established East Coast regions, with about 70% to 80% in that area, whereas last year was split between 40% West Coast, 40% expansion, and only 20% established East. The regions we are focusing on generally offer better yields.

Matt, I want to continue that conversation. The $800 million in starts this year, how much have you had to lower pro forma rents just given the softness in market rents over the last 6 to 12 months, even in those established East Coast regions?

Yes. It's interesting, John. There are a couple of deals. Some are pretty much even. What we've seen in a couple of cases, actually, we just started a deal in Q4 in Northern New Jersey, Kanso Parsippany. That deal is a high 6s yield and when we underwrote it kind of in due diligence 1.5 years ago, 2 years ago, the rents were higher and the costs were higher. What we saw is when we went to our final, what we call Class III budgets, the hard cost came in and the rents are down a little bit. Those two more or less washed out so that the yield kind of stayed the same. That's what we're seeing for the most part with that particular mix of business, a little less rent and a little less cost. In some cases, the cost reduction is more than the NOI reduction and in some cases, not.

Okay. Just what I'm getting at is I'm very surprised about how high the yields are. And I know you guys are very good at what you do. But if there's high 7% yields versus, I don't know, maybe low to mid-5 cap rates in these markets, if that's true economics, we should expect to see development start to reaccelerate across your markets. So is there anything idiosyncratic in this $800 million pipeline that's not representative of market yields? Or do you think that it's a representative sample size?

It is more selective. There aren’t as many deals that we're finding that can achieve that spread, but I’ll say we’re finding more than our fair share. We’ve believed for some time that we can gain a larger portion of a shrinking market. Many of these deals have been in the entitlement process for years. There may be an affordable component or a pilot that isn’t specific to New York City, but rather a long-term pilot. There might be additional complexities that are challenging for those who haven't been in this business and markets for many years to reconstruct. I do believe we’re seeing a bit more supply in some of these East Coast areas that are facing supply constraints, but we’re capturing a larger share of it. Our volume is decreasing as well, so I’m not overly concerned about a sudden influx of supply that many others could replicate.

And John, just for the broader listening audience out there, I just want to clarify; we're targeting yields for those $800 million of projects in the 6.5% to 7% range relative to cap rates in and around circa 5% today.

Okay. Last question for me. Should we expect additional pressure from property tax abatements in 2027 or any other pressure from utility costs in AvalonConnect? Or is 2026 the peak of the pressures, if you will?

Yes, John, this is Sean. In terms of the abatements, yes, we do expect some level of headwind from abatements to continue, but it does move around from year to year, and we do expect that for the next few years here in terms of that element. In terms of AvalonConnect, there are two components there; there's this bulk Internet piece, and there's a smart access piece. The bulk Internet piece, we pretty much have stabilized. There's a little bit of lingering cost there for 2026, and that pretty much phases out. The smart access component, which is far less impactful, will continue for probably another 18 to 24 months, but it's relatively modest compared to the bulk side of it.

When you guys think about the remaining gains capacity, are share buybacks or paired trades from the established regions into your expansion regions more attractive today? And does the pullback in development funding needs provide any additional capacity for you for share buybacks without either levering up or evaluating paying a special dividend?

Austin, this is Kevin. I'll start. Others may want to jump in here. What I'd say is, this year, our capital plan contemplates only modestly sourcing capital from disposition activity. So that does leave us with a healthy level of asset sales capacity to fund incremental investment activity, whether it's for a share buyback or incremental development activity before we have to worry about a distribution obligation. We do have the capacity to sell a very healthy level of additional assets and retain the capital for future investment purposes.

I'll add, Kevin, just to clarify; in our baseline budget, we're not assuming any share buyback activity. We do still very much see it on the menu of potential opportunities for this year. To your question and comment, the potential opportunity of selling slower growth, higher CapEx assets out of our existing portfolio and then redeploying that capital into share buybacks in today's range in sort of the low 6s, not only is it accretive, but it helps position the go-forward portfolio for stronger growth.

And then can you share what the cap rate was on the asset sale in San Francisco in January and then provide an update? I think you had another $235 million or so of pending sales that were previously under agreement as of late last year.

Yes. Austin, it's Matt. So the asset we sold in San Francisco last week was at a low-5s cap rate. There's a bigger spread there between the cap rate and the yield given that we've done that for a while. So there's a Prop 13 overhang there. That's also an asset that had some pretty heavy CapEx needs in front of it. You have to factor all that into what I'd say is the economic cap rate, so to speak, kind of in the low-5s. We have a couple of others either in the market or working that are; some are a little bit higher than that in terms of the economic cap rates, some are a little bit lower. We'll see where they clear the market. We have at least one more that we expect to close this month, probably around the same kind of low-5s cap rate, with a little bit less of a spread there. We have a couple of others in the market working where we'll see how that unfolds. It really varies a lot based on what market you're selling into, and I will say this, everything we have either planned for sale this year or currently in the market are all older high-rise assets, and most of them are in urban jurisdictions. They are very much aligned with our longer-term portfolio goals.

Yes, Austin, one thing I'd add on that San Francisco asset specifically is that's a 50-plus-year-old high-rise asset with some heavy CapEx, subject to rent control. It's a little bit of an outlier for our portfolio, not necessarily representative of the rest of the assets that we own in the city.

Following up on the renewal rates in the fourth quarter in January, were there any specific markets that drove the decline versus the third quarter? I know you mentioned layoffs in Boston. I'm just curious if there are any markets where you're willing to negotiate a little bit more to protect occupancy.

Yes. Good question. It's Sean. I would say, in general, what we see is a little bit of moderation in Q4 because seasonally, you're seeing the asking rents for move-ins come down, and there is a correlation between the renewal rates you can achieve and what people see on the website for the deal down the street. As you had softer move-ins, usually a little bit softer in Q4 of this past year, you see it trend down. It was more broad-based than individual. I would say the markets where we probably negotiated more are some of the softer markets that I mentioned earlier in terms of the Mid-Atlantic, Boston, and probably Denver as the outliers to the weaker side compared to the average.

Can you talk more about the other income drag from the legislative activity last year? Along those lines, I mean, it's a midterm election year; affordability is a hot topic. Any other initiatives you guys are watching closely? I know there's a Massachusetts potential ballot initiative. What should we keep our eyes on this year from the political front?

Jamie, it's Sean. First, on the other rental revenue side, there are really 2 or 3 drivers that are probably the most meaningful to call out: legislation passed in Colorado impacting the ability to charge certain fees or cap certain fees that's flowing through other rental revenue. In addition to that, by the way, we didn't call this out on the OpEx slide, but it limits our ability to recover some utility components as well, which is about a 15-basis point drag in terms of OpEx growth. It wasn't something, again, we called out on the slide. The other one is new legislation in California, AB 1414, that provides residents with the option to opt out of a bulk Internet program to the extent there is another offering available at the community. We don't know exactly how many people will opt out, but we have looked at other programs for residents who have an opt-out right, like rent control programs, et cetera, and modeled it to reflect that type of outcome. Those are the 2 primary ones that are dragging. There are a couple of other small things, but those are the big ones. As it relates to the forward-looking in terms of the election, yes, we're keeping an eye on Massachusetts. I think I mentioned on the last call that the way that ballot initiative was drafted is pretty onerous. So onerous enough that already various political leaders in Massachusetts have come out and said that they are opposed to it, completely opposed to it. We will have to go through a process here to potentially defeat it, but we do believe that relative to other initiatives we've fought, like in California, this one probably is set up to be a little bit easier to defeat. Other things we're keeping an eye on are those similar to what happened in Colorado or California, where people are thoughtful about not going directly at things like rent control, but wanting to make sure there is increased transparency and disclosure around the fees charged for different things, and how to recover utilities, et cetera. Those are the ones we're keeping an eye on, and the National Multi-housing Council, as well as various associations around the country, are very engaged in those types of activities to ensure people are aware of what constitutes good legislation versus not.

Okay. And then I guess just going back to the comments on New Jersey, I think you had mentioned rents are lower, but costs are lower on new developments. You've got a decent amount of lease-up in those markets. I think your latest start is also in New Jersey, and then your stats over the year are on the weaker side of your markets. Can you give more color on your expectations both on the lease-up side, timing of getting those projects done, and even the new start? What gives you confidence to start there, given there is so much supply coming in that market?

I can begin and then Sean may discuss the stabilized portfolio as well. There isn't a significant amount of supply expected, perhaps slightly more than we have seen in the past, yet it remains one of our strongest markets. Although it's not as robust this year as New York City, it generally aligns closely with New York City, especially in Northern New Jersey. Our lease-ups in that area are performing well and are mostly on track. Overall, our lease-ups have improved somewhat. In the fourth quarter across our entire lease-up portfolio, which includes several in New Jersey, the average leases were about 20, despite being a slower quarter. In January, we achieved 26 leases across the various projects we have in lease-up. We're continuing to gain solid traction. We plan to adjust prices to fill the communities before reaching the first renewal, which typically occurs within a year to 15 months. If necessary, we'll modify pricing to maintain our target pace. Last year, a development in New Jersey completed ahead of pro forma by 20 or 30 basis points. Generally, our current lease-up projects are performing according to pro forma expectations. While they aren't exceeding pro forma anymore, we remain confident that the initial spread we underwrote is being maintained.

Jamie, just in terms of the specific deals, we had three deals with lease-up activity through Q4 into January. So through Q4, the average monthly pace was around 20 a month. When you get into January, the three deals, Avalon Parsippany did 32, West Windsor did 20, Avalon Wayne did 24, which are pretty good numbers in January, where it was also pretty darn cold. Those are pretty good numbers in our view, above what we would have expected in January, frankly.

Curious if you can give us an update on your views around the D.C. market and surrounding markets and the DOGE impact. I think maybe it was a little understated as of a quarter ago. So where do we sit today with that?

Yes, Rich, it's Sean. I can start and then others can add, if needed. I mean the fundamental issue has been you had lots of jobs. If you look at the last 6 months actual, with the data trued up and everything, we lost about 60,000 jobs across the Mid-Atlantic. That's the primary driver of the softness. I think the question that people have asked, and there's not a 100% clear answer, is whether there is more to come or not. When we were talking about this earlier in 2025 back in Q2 and even Q3, the data was lagging and it takes time for it to filter through. We think we got '25 relatively captured, but there could be another revision here soon, but we'll have a good feel for that. The way to think about the Mid-Atlantic is, obviously, the impact of that has been meaningful in terms of demand in the market. What we feel a little bit better about is that, as I mentioned earlier, there is about a 60% reduction in deliveries in 2026 as compared to 2025. That is a very large number. If we see at least some stabilization from the federal government and other major employers or even some modest growth without that kind of supply, particularly as we get to the back half of the year, things should start to look better. If we see an uptick in job growth beyond what we've already forecasted, then it's potentially a market that could have some upside to it. There's a need for a bit more business confidence as it relates to making investments in a stable environment. But I think it's a little bit of TBD, but we're expecting basically the first half of this year to look a lot like the second half of last year.

Can you kind of provide a breakdown of the performance between urban and suburban? And does that vary by the East Coast, West Coast, and the Sunbelt markets?

What I can tell you in terms of the breakdown from a submarket type for rent change for the last couple of quarters, the urban portfolio has outperformed our suburban portfolio. One thing you have to keep in mind in that regard is it doesn't mean in absolute sense that those markets are healthier. You have to look at each one because in some cases, what's inflating that rent change in some of the urban submarkets is that they are less bad than they were a year ago. You have concessions for 3 months, another 2 months, that's an 8% effective rent change right there. Just keep that in mind as you think about it. Some markets are pretty healthy. San Francisco is looking very healthy; some of that is concession-driven, but it's also good lease rate growth. New York City is quite positive. Then there are places like Seattle, where it's still pretty soft, but concessions aren't as bad as they used to be. So just keep that in mind.

Thanks, everyone, for joining us today. We appreciate the questions and look forward to seeing you soon.