Equity Residential Properties Trust (EQR) — Q3 2025 Transcript

Good morning, and thanks for joining us to discuss Equity Residential's third quarter 2025 results. Our featured speakers today are Mark Parrell, our President and CEO; Michael Manelis, our Chief Operating Officer; and Bret McLeod, our CFO. Bob Garechana, our Chief Investment Officer, is here with us as well for the Q&A. Our earnings release is posted in the Investors section of equityapartments.com. Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events. Now I will turn the call over to Mark Parrell.

Thank you, Marty. Good morning, and thanks for joining us today. I will lead us off with some broader commentary, then Michael Manelis will provide color on our third quarter revenue performance as well as what he is seeing in the markets today, followed by Bret McLeod, our new Chief Financial Officer, who will address expenses and our NFFO guidance, and then we'll go ahead and take your questions. Our third quarter results reflect the resilience of our business. Despite what is generally a mixed macroeconomic picture, we continue to see good demand and excellent resident retention across most of our markets, with results strongest in San Francisco and New York, where continuing high demand has meant modest supply. We see our existing residents as having a generally stable employment situation and good wage growth. When last reported, the unemployment rate for the college educated, our key renter demographic, was 2.7%, considerably below the national average. This is consistent with the experience at our properties as we see continued improvements in delinquency and no other signs of customer financial stress. We have also seen incomes rise for our new residents by 6.2% year-over-year, a healthy rate of growth. Finally, we continue to see residents react to the uncertainty in the economy and the quality of our properties and people by renewing with us at record rates. In fact, we reported the highest third quarter resident retention in our company's history, allowing us to maintain high occupancy rates in the mid-96% range. In sum, our existing customer is financially healthy and happy to stay with us. On the new customer acquisition side, we began to see weakness in traffic during the back half of September. This was most pronounced in Washington, D.C., but did manifest itself in other markets as well. The best way to think about this is for us to say that our normal pattern of a seasonal decline in traffic began one month earlier than usual. In fact, everything this year feels like it was pulled forward. The leasing season started earlier than usual and peaked earlier than usual, just as the normal seasonal pattern of traffic decline began earlier than usual. This acceleration of seasonal patterns, weakness in Washington, D.C., and some minor delays in the rollout of another income initiative that Bret will discuss in a moment, led us to adjust down the midpoint of our annual same-store revenue guidance by 15 basis points to 2.75%. In terms of market commentary, Michael will speak in a moment on specifics in D.C. and elsewhere, but I did want to make a general comment on San Francisco, where we have 15% of our net operating income. After a prolonged recovery, we are excited by what we are seeing in San Francisco, particularly the urban core, where we have more exposure than our competitors. As we talked about at our Investor Day earlier this year, we thought San Francisco had the opportunity to be a strong performer in 2025, and that is exactly what is happening in this, the epicenter of the AI technology revolution. As a result, we expect San Francisco to be our best-performing market this year. At our Investor Day, we also spoke positively about the Seattle recovery story, and we do see improvement there, but due to higher supply levels in Seattle than San Francisco, this improvement is occurring at a slower pace. Conversely, but as we generally expected, we are seeing very different conditions in our higher supplied markets, specifically Denver, Dallas-Fort Worth, Austin, and Atlanta, where we have about 11% of our NOI. In these markets, where the slowing job picture is meeting continued high levels of supply, we see a significant lack of pricing power. And to be clear, the supply pressure includes both recent new apartment deliveries, which are pretty well tracked by all the data providers, and the continuing pressure from slow lease-ups of already completed properties, as well as the first round of lease renewals at properties that were delivered a year ago, where landlords are struggling to remove lease-up concessions when going through the renewal process in places with many choices for consumers. This not yet fully stabilized supply is less well tracked by data providers and is not as well understood by investors, but is certainly impactful. Over time, all of this supply will clear the market, and we remain comfortable with the cost basis at which we acquired the assets we own in these markets. We also are positive on longer-term return prospects in these markets, complementing our portfolio diversification goals. But as we've said on prior earnings calls, we do expect to see an elongated recovery in these markets. Switching over to capital allocation. As you saw in the release, we have been active in buying our shares, with the company repurchasing approximately $100 million of its stock during the third quarter and subsequent to quarter end. We see our company with its high-quality asset base and sophisticated operating platform and forward growth prospects as greatly undervalued versus asset prices in the private market. Also, we closed on one acquisition in the quarter, a 375-unit property in Arlington, Texas, that has been in process for some time. This property was just completed in 2023 and is a nice complement to our Dallas area portfolio. We sold 2 deals in the quarter, one in suburban Boston and one in suburban D.C. These were older assets averaging nearly 30 years in age. These transactions all traded right around a 5% cap rate. As you also saw in our release, we have lowered our acquisitions and dispositions guidance for the full year to $750 million of each from $1 billion of each, with the vast majority of these transactions already completed. As I just discussed, with private market assets often trading at sub-5% cap rates and at or above replacement cost, our stock presents a compelling value at current levels, making us selective and limited in our acquisition activity for the time being. Dispositions of properties to fund the buyback will occur over the next several quarters, and we'll focus on properties with lower forward growth potential or where we are overconcentrated. Before I turn the call over to Michael, I want to reiterate how excited we are about the forward prospects for our business. Our internal tracking shows deliveries of competitive new supply in our markets declining 35% or by about 40,000 units in 2026 versus 2025 levels. The results we are seeing in San Francisco and New York demonstrate the earnings growth power of our business when we are operating in markets with sustained demand and low levels of competitive new housing supply. We believe more markets we operate in will trend in that direction in 2026, assuming the job situation is reasonably constructive. For example, our internal tracking shows 2026 new apartment supply in the Washington, D.C. market that is competitive with our properties will be declining by over 8,000 units or down 65% to below 5,000 units, a level we have not seen since at least the great financial crisis. With portfolio-wide occupancy of more than 96% and occupancy nearly 97% in some of our key markets, we think this sets us up well for another year of solid performance in 2026. And if job growth reignites, we could see some very good results. In sum, we continue to see the current and future drivers of our business as healthy and the forward momentum is solid. And with that, I'll turn the call over to Michael Manelis.

Thanks, Mark, and thanks to all of you for joining us today. Our third quarter results reflect solid demand, with outsized performance in San Francisco and New York. Currently, general macroeconomic uncertainty remains as a result of tariffs, lower job growth, and more recently, the government shutdown. These factors make forecasting demand a little bit more challenging today than it was 90 days ago, but what has not changed is the excellent setup we have going into next year due to the dramatic reductions to competitive new supply. Breaking down our third quarter operating results, our renewal rate achieved for the quarter remained strong and was up 4.5%, with nearly 59% of our leases renewing, and both of these were in line with what we thought would happen through the quarter. Our centralized renewal process and intense focus on customer satisfaction has helped deliver the lowest reported third quarter turnover in our history. Across our portfolio, the average length of stay has increased by nearly 20% from 2019 and retention is at record levels. As secular trends and our focus on enhanced customer experiences have driven increased retention, the positive impact on same-store revenue growth from renewals has become more significant. Our unique value proposition and customized renewal experience reduce costs associated with vacancy and new customer acquisition, like marketing and concessions, while enhancing customer satisfaction and removing the friction costs on our residents who choose to remain with us. This strategy optimizes overall revenue and improves customer satisfaction despite potential short-term variability in new lease change, which is an output that is greatly impacted by who moved in or out. With that said, new lease rates at negative 1% came in lower than we expected and resulted in a 2.2% blended rate increase for the quarter, which was at the low end of our range. As Mark described, pricing trends peaked in July this year at a level that was both lower and earlier than normal. Prices stayed relatively flat through August and started the seasonal descent in September, which is typical. But we did observe some late-quarter pricing softness, mostly in Washington, D.C., which I will describe in a minute, which impacted our new lease change. For the entire portfolio, physical occupancy remained high at 96.3% for the quarter, driven by solid demand and strong retention in our coastal markets, excluding D.C., which gave up some occupancy at the end of the quarter. Let me take a minute and highlight a few of the markets that are driving performance. The recovery in San Francisco, particularly downtown, is real. As the epicenter of all things tech, workers have returned to the market and drove high occupancy and very good rate growth on both new lease and renewal rates. This strength was supported by the positive trends we observed in our migration data, with just over 4% more move-ins coming to us from outside both the MSA and the state of California. In addition, we have a very favorable new supply setup in the market in 2026, with only about 1,000 units of competitive new supply being delivered. San Francisco will be our best-performing market in 2025 and most likely again in 2026, as we are just now approaching 2019 rent levels in our downtown portfolio, while median incomes in the market are up 22% since 2019. Similarly, New York continues to be a strong performer. Job sentiment in the market has been good and competitive new supply has been and will continue to be very low, which should position us to deliver above-average revenue growth again next year. I would note that our combined exposure to urban San Francisco and New York and the positive demand and supply outlook in 2026 is particularly unique to EQR and should be a relative strength for us versus peers next year. While D.C. will end up having a strong 2025, the year has certainly been a tale of two markets. The strength we saw early in the year carried through most of the third quarter. But as I mentioned, in late September, we definitely started to see some softness in demand and pricing power. A combination of federal job cuts, the National Guard deployment, followed by the government shutdown, has created a lot of uncertainty in the local market. Most of the pressure is being felt in the district and in pockets of Northern Virginia. In these areas, our current operational focus is preserving occupancy. And while we aren't experiencing residents turning in keys due to job loss, our overall turnover in the D.C. market did increase slightly in the quarter, and the volume of leasing activity has slowed as the overall market still needs to absorb the nearly 13,000 units delivered this year. The good news is that in 2026, competitive supply in D.C. will drop 65% and remain low for the foreseeable future, which is a marked change from the past decade. Add to that our sense that in the long term, the federal government will continue to be a job engine regardless of the near-term headwinds of temporary cuts or shutdowns. Overall, we feel very good about D.C. as a market in the long term. Shifting to Los Angeles. The city continues to face challenges and remains a wildcard as we head into 2026. We continue to see overall market weakness driven primarily by slowdowns in the entertainment industry. And although the quality of life issues are improving, they are still not where we would like them to be. We have demand, but less pricing power, particularly in the urban portfolio, where we continue to feel the impact of new supply in our Downtown, Koreatown, and Mid-Wilshire portfolios. Our suburban submarkets of Santa Clarita, Inland Empire, and Ventura County are performing well. As in many of our coastal markets, supply will be lower in 2026, but we will need to see a catalyst for demand in order for us to have pricing power return. Our hope is that with the upcoming World Cup in 2026 and the Olympics in 2028, there will be long-term incentives for the quality of life to improve in L.A., albeit from a low base. In our expansion markets, which currently represent only 6% of our same-store NOI and 11% of our total NOI, high levels of new supply continue to impact operating results in Atlanta, Dallas, Denver, and Austin. Atlanta is faring the best of the four and Denver the worst. Our same-store portfolios in both Atlanta and Dallas should see improved results and perform better than the broader market next year as we add our recently acquired more suburban assets to the same-store portfolios next year. Before I turn it over to Bret, let me take a minute to highlight our current activities around innovation. In the third quarter, we deployed our AI-driven application processing tool, which has already delivered a 50% reduction in the overall application time. We currently have about half of all applications being completed within one day, and this process includes a more robust, comprehensive ID verification process that should help reduce fraudulent activity going forward. Overall, I am really excited about the opportunities in 2026 as we continue to implement AI in other key areas of the resident experience. Next month, we will begin testing a new service application module that is designed to improve service request intake, provide self-service tips, optimize team schedules, and ensure qualified team members address tasks efficiently in a single visit. This is a great example of how we are focused on increasing the utilization of our workforce while at the same time, creating a more seamless and responsive experience for our residents. I want to give a shout-out to our amazing teams across our platform for their continued dedication to our residents while embracing change to further enhance our operating platform. Our portfolio will end 2025 well occupied with a strong platform that combines automation, centralization, along with a local team that knows how to keep our customers satisfied while getting a larger share of the demand pool, whatever that level may be in the markets. And with that, I will turn the call over to Bret.

Thanks, Michael. Before I walk through our updated guidance, I first wanted to say how excited I am to be here at Equity Residential working alongside Mark, Michael, Bob, and the rest of our talented corporate team. It's been nearly 100 days since I joined the company, and I'm even more impressed with the organization than when I started. I'm comfortable stating that because one of the first things I did here was hit the road and visit many of our communities and hardworking associates across the country. My early travels included some of our top-performing markets, such as San Francisco and New York, where I saw the quality and location of our assets firsthand, as well as the innovative operating platform Michael and the team have established. I visited Seattle, where we are set up well for 2026, benefiting from local return-to-office mandates and continued AI investment growth. I also traveled to Dallas, one of our larger expansion markets, and witnessed constant examples of the outsized demand growth dynamics that are driving our positive long-term thesis on that metro area. I'm grateful to all my new colleagues for helping me get up to speed so quickly. With that said, let me provide some color on the guidance adjustments we made this quarter, which continued to reflect a stable and resilient business outlook, albeit amidst some macroeconomic and employment uncertainty, as Mark and Michael described. We've adjusted the top end of our full year same-store revenue outlook down as a result of third quarter same-store blended rate coming in at the lower end of our prior range and what we have seen in early fourth quarter trends. In addition, a portion of other income growth related to bulk WiFi that we expected to realize in the second half of 2025 has rolled out slightly slower than planned and will now be pushed into 2026. That said, we still saw strong quarter-over-quarter growth in other income of 9%, demonstrating our ability to continue to pull multiple levers to drive overall revenue. The combination of these two factors resulted in a revised 2025 same-store revenue range of 2.5% to 3% with a midpoint of 2.75%, which matches the midpoint of the range we guided to at the beginning of this year. We've held same-store expenses steady at 3.5% to 4% for the full year and continue to see sub-inflationary trends on payroll, insurance, and real estate taxes, partially offset by higher utility expenses, particularly in California. I would remind you that our 2025 same-store expenses are approximately 40 basis points higher this year due to the continued rollout of bulk WiFi, which sits in repairs and maintenance but is positively contributing to outsized other income growth for the remainder of the year and will continue to do so as we move into 2026. The net result of these same-store revenue and expense adjustments is a revised annual same-store NOI range of 2.1% to 2.6% and a midpoint of 2.35%, 15 basis points higher than our original 2025 guidance, but 15 basis points lower than the midpoint we provided in the second quarter. For normalized FFO, we've tightened our range of both the top and bottom end and are estimating full year 2025 NFFO per share of $3.98 to $4.02, leaving the midpoint unchanged from Q2 at $4 per share. Slightly reduced same-store NOI should be offset by expected continued improvements in lease-up NOI and lower property management expense. With that, I will turn it over to the operator and open it up for questions.

It's Nick Joseph here with Eric. I appreciate the comments on the peak leasing season and totally understand that the timing of each year is a bit unique. But I guess in the past, when you've seen rent growth falling at this time of the year, how do you approach the forecast for next year's growth? And how do you decide whether these are more temporary factors affecting rent growth or something that's more likely to persist going forward?

Yes. Nick, this is Michael. I mean that's a great question. I think what I would start with is just say, as what we felt coming out of that peak leasing season and looking at some of the decelerations that occurred in that later part of September as carried through October, we basically just took kind of that seasonality through the rest of the year. And how it kind of manifests itself into next year, there's still a lot of seasonality to these blends. And I think I'm going to stay away from kind of giving the exact kind of guidance or outlook for next year. But we do expect to start out next year well occupied with some embedded growth that looks very similar to kind of how we started out this year. And I think the wildcard for us is really going to be what does that intra-period kind of rate growth look like. And for us, in many of these markets, it's going to be when does that consumer sentiment turn positive again. We have such a great setup with the reduction of competitive supply being so much lower in many of these markets. It's not going to take much of a catalyst from that sentiment change or any kind of catalyst in the job growth in these markets to really fuel that intra-period growth. So I think for us, I'm going to stay away, like I said, from giving you the guidance, but we're modeling right now for continued deceleration for the back of the year, but still feel pretty good about the setup and the outlook into next year.

I appreciate that. And then just in terms of capital allocation, you've done $100 million on the buyback so far. Given where the stock is today, what are the factors? Or how are you thinking about really leaning into that and doing it at a much more meaningful scale versus other opportunities with your capital allocation?

Nick, it's Mark. Thank you for your question. There are two main factors at play here. One is the attractiveness of our other investment opportunities, which mainly involve purchasing existing assets or developing new ones in comparison to buying back stock. We opted for the stock buyback in the last quarter and made those purchases. The second factor is the availability and cost of the capital we need to buy back stock. We mainly have two options: issuing debt or selling assets because, as a REIT, we cannot hold onto much in earnings. We already pay a substantial annual dividend of $1 billion. Therefore, our current approach is to continue selling lower return profile assets or those with an overconcentration in certain submarkets to enhance our business's growth potential and take advantage of the valuation differences between private and public markets while remaining cautious about further stock purchases. The specific actions we take will depend on the stock price and available opportunities. I want to remind everyone, as you know, there are genuine tax gain limits, with significant embedded gains in our assets. We've made substantial investments over the years, resulting in our assets being valued much higher than their tax basis. We also utilized 1031 exchanges. It's important to be careful not to reduce the company's scale excessively since there are considerable fixed costs associated with running a public company of our size. We are open to pursuing additional buyback activity in the coming quarter.

I was wondering, Michael, if you could provide any color on just kind of where the earn-in sits today as we kind of head towards the end of the year?

Yes. So I think maybe I'm going to just start off and let me define or clarify embedded growth, which is kind of also referred to as that earn-in. And it basically just means that you're freezing the rent roll on 12/31, you annualize all the leases in place with no changes to occupancy or vacancy loss throughout the year. We started 2025 out with approximately 80 basis points of embedded growth on the same-store set. And while that was slightly below the historical average of 1%, it was still a pretty solid position for us to start off the year. Given the current momentum that we see now and some of that deceleration that I just referred to that we modeled, we now expect 2026 to start out in a relatively similar position than we did this year. And our view is a little bit lower than what we thought 90 days ago. And this is really just a result of us taking down that trajectory of the fourth quarter given some of the deceleration that we saw begin in kind of late September. And I do want to call out because I know a lot of you guys have these models. And while the math is not perfect, right, rough estimates, you start out with about 50% of the expected full year blended growth. But in 2026, we're going to also be folding in some of the assets in the expansion markets. And while these assets are clearly performing better than the same-store assets in those markets, they're not performing better than the overall kind of coastal same-store portfolio. So it's going to be a little bit dilutive to that embedded starting point. But again, I think at the high level, we would say we're going to start out 2026 in a relatively similar position as we did in 2025.

That's helpful. Going back, it seems that the slowdown in the seasonal trend has increased pressure on new lease activity and top-of-funnel demand. I'm curious if you've noticed any changes in renewal behavior. Have you experienced any significant changes in renewal success, or is most of the weakness primarily occurring in the new lease segment?

Yes, this is Michael again. Great question. We've noticed some hesitation in certain markets during the renewal process, resulting in more back and forth. Our centralized renewal team is managing all negotiations, which has allowed us to implement various strategies effectively. Currently, we've sent out renewal quotes about 90 days in advance, with those quotes reflecting a 6% increase. As of now, we are confident in our process and expect net effective renewal increases to be around 4.25%. This is a period when we typically focus on retention and may negotiate more as we approach the shoulder season. While there's been some hesitation, we remain confident and are seeing strong resident retention, although it requires a bit more effort to secure those leases.

I have two questions. Bret, I'll start with you. By the way, nice job with your Blue Jays last night. This may be before your time, but I remember you did converts back in 2006, and it seems like those rates are showing up again. You have some mid-3% debt maturing next year, and I’m curious about your thoughts on the possibility of reentering the convert market. Do you feel that since you’ve only done it once two decades ago and had that experience, you might just stick with traditional financing? I'm trying to gauge your perspective, especially considering how receptive some other large REITs have been in pricing converts tightly.

Alex, it's Mark. I'm going to start here. It is historical context that Bret lacks, but certainly understands converts very well given his experience level. So when we did that back in '06, we did that in part because we were working with the Lexford portfolio sale and buying into lower cap rate, higher growth markets like New York. And so this was a little bit of an asset matching exercise for us, and the terms were pretty appealing. So I do think converts are an interesting tool. I think there are times, they're very beneficial. If we got our hands, for example, on a portfolio where it was a big lease-up effort that we were going to have or a big renovation effort, and it was pretty material, you might match fund that with some converts. The accounting disclosure converts is pretty favorable now. And then if it succeeded, the convert holders would benefit, the existing equity holders would benefit, and it would all make some sense. Otherwise, we're an opportunistic and infrequent issuer of converts. It's a little awkward to be buying your stock back and issuing converts at the same time. So we'll just have to balance that out.

Okay. And then the second question is on AI. A lot of discussion on whether it's sort of a net job creator or it's maybe a job eliminator or it's just obviously different headlines on layoffs and stuff. So in your key AI markets like New York and San Francisco, are you seeing a ripple effect where the AI job hiring is benefiting other related industries and you're seeing net overall job growth? Or are you seeing sort of the reverse where AI job growth is ending up with other positions in those markets being eliminated and replaced by AI?

Yes, that’s a great question. It's Mark. I’ll have Michael share what he’s hearing from people on-site and in the markets. After that, I’ll provide some insights on our perspective regarding AI and employment in the long term. However, I have to emphasize that it’s quite uncertain at this stage. So, Michael?

Yes. I mean I think one of the best indicators we have is when we drill into some of our migration data, which is where our new residents are coming from, what industries are they working with. I wouldn't necessarily say, Alex, that this is all driven because of AI that we're feeling. But when you look at San Francisco and New York, San Francisco clearly saw in migration, 4% more of our move-ins coming to us from outside the state of California, outside kind of that MSA, which basically is telling us there's a lot of kind of excitement going on. I mean this is the epicenter of tech. So even though you see the big guys kind of really dominating the headlines around AI, there's a lot of other start-up industries. There's a lot of businesses now that are benefiting from just an overall shift in the technology strategy of companies. And I think we're benefiting from that. New York, what was interesting for us is we saw a slight uptick in that migration pattern coming in from outside that MSA. But what was cool on the outbound side, people that were leaving our portfolio were staying in the state and in the MSA at a higher degree than what we saw before, which gives us confidence that kind of that market is going to be doing really well for us next year.

Yes, I want to add a final thought about AI. There has been a lot of discussion about whether AI will eliminate many white-collar jobs, but the truth is that no one really knows. Many comments about significant job displacement come from those who benefit from the AI boom, so there could be some self-interest involved. However, I believe AI is a valuable tool that will reshape the connection between colleges, students, and employers. Currently, colleges produce smart graduates with strong general skills, but they may not be adequately prepared for the workforce. In the future, it seems likely that colleges will need to emphasize teaching data analytics and AI skills. As a result, graduates will enter the job market with skills comparable to those of second or third-year employees. The individuals working at our properties are highly educated, often from Gen Z and millennial generations, and are digital natives who will grasp AI quickly and effectively. I believe the market will adapt to these changes, and I do not subscribe to the belief that AI will eliminate all jobs.

A question for Michael, following up on your San Francisco comments. If you could speak to your prior experience in that market when demand starts to accelerate, how quickly can rents increase? And then does seasonality still hold or kind of not as much given the growth in jobs?

Yes. I mean, obviously, any time you have supply-demand kind of imbalance, and in this case, in San Francisco, you have very little competitive supply and you have more demand coming into the portfolio, that creates this opportunity for rent growth. And I think I alluded to in my prepared remarks, we're just now getting back to 2019 kind of rent levels in our portfolio. But when you look at incomes in that market, it's up 22% since 2019. So I think historically, what you see is any time you have this imbalance and you have strong demand, less supply, you're going to be in a position of pricing power. I don't know that it's going to completely abate any kind of seasonality trends. So you may see some softening in very strong numbers still like in the fourth quarter or in the first quarter, but we clearly have an opportunity in front of us, and this is exactly what we kind of highlighted earlier in the year at our Investor Day. This recovery is taking hold, and we're really excited to see it kind of playing out at this pace.

And a quick one for Bret. On the WiFi expenses, you mentioned it was kind of a 40 bps delta in 2025. Is there additional expense related to this initiative in '26 or that will kind of just be smoothed out?

Thanks for the question. No, that's primarily for this year. So right now, we're just looking forward to getting the revenue after we've had the expenses run through this year.

Can you give your perspective on what you expect to happen in D.C. over the next 6 to 12 months? And how much of an impact has a shutdown historically have? And how much do you expect this one to have?

Yes, this is Michael. I'll begin by providing some insights into our observations in D.C. and how the various submarkets are performing. In early September, we noticed a hint of hesitation among prospects, which affected the urgency to finalize leases. As we moved from September into October, this resulted in a lower volume of new lease signings, although retention remained strong. In the D.C. area specifically, our suburban Maryland portfolio is performing very well, with over 97% occupancy and slightly higher rents than last year. In Virginia, particularly in the deep suburban areas like Fairfax, we are seeing good occupancy and a few percentage points of rent growth. However, in more urban areas of Virginia near D.C., while occupancy remains solid, we encountered some areas lacking pricing power, leading us to offer concessions. In Northwest D.C. and the central district, occupancy is around 95% with an increase in concession use over the past month and net effective prices down 4%. Moving forward, we don't anticipate people losing government jobs and returning keys or an uptick in lease breaks; rather, we see an overall slowdown in new commitments. Consumer sentiment is unpredictable and can change rapidly, potentially improving if the government shutdown concludes and hiring confidence returns. This would position the market favorably for us, especially with the expected decrease in competitive supply next year, which could restore our pricing power. The key question remains when this turning point will occur.

Michael, outside of the D.C. Metro, what other markets do you see a real cooling of demand in the last month or two?

Yes. It's a little bit hard to hear you. Are you just asking where else did we see a decline in demand in the last month or so, other markets?

Yes, outside of D.C. Metro. Sorry for the quiet voice.

Yes. No, that's okay. I think I would put Boston kind of into this mix as well for us, which is we've been watching kind of Boston. It's a very seasonal market in general. But I think what we've seen right now is just a little bit more softening than you otherwise would have expected. And when we started this year, we thought this urban core of Boston was going to do better than the suburban. Again, we're 70% urban in that market, 30% suburban. It's absolutely playing out that way where the urban portfolio is outperforming the suburban. But it's just not as robust as what we would have thought. So we've kind of taken down that fourth quarter projection as well. And I think I even alluded to some of this on the last quarter call, which is we clearly had headline risk there. And I think right now what we're seeing is a confirmation that a weaker biotech sector, pullback in university and research funding, and immigration challenges are all just chipping away at this overall demand levels in the market. And I think right now, when we turn the corner and we start off next year, I still think the urban portfolio is positioned to outperform the suburban. But we got to get through some of these kind of near-term demand driver vulnerabilities that we're seeing right now.

This is Ami, on with Michael. What impact, if any, do you expect from the announced Amazon layoffs? How exposed is your portfolio to the specific submarkets most likely to be impacted?

Yes, Ami, this is Mike. I'll address that. First and foremost, having a diversified portfolio helps mitigate risk from reliance on any single employer. Looking at our entire portfolio, we capture employment data when residents apply, not after they move in. Currently, about 3% of our units had residents employed at Amazon when they moved in. Certain markets, like Seattle, have a higher concentration of Amazon employees, particularly in our three properties in South Lake Union. We’ve experienced similar layoffs before, and the current situation appears widespread across various markets. This isn't an immediate issue; the affected individuals are highly skilled and many will receive severance packages. In Amazon's case, they have 90 days to seek new roles within the company, and even in markets like D.C., there are still 300 job postings. While major headlines can impact overall demand, I don't see this as a significant concern for us.

Okay. That's helpful. And then next question is on leasing concessions. They're still at a relatively low level of rents, but on a year-over-year basis, they jumped up pretty materially. What are you offering in terms of concessions? And are they concentrated in certain markets? And last question, are you offering any concessions on renewals?

So this is Michael again. Very, very limited concessions are being used in our renewal process at all. I think on a cash basis in the third quarter, we did use more concessions than we originally expected. I will just put this in terms of days per move-in. So in the third quarter move-ins, we averaged about seven days of rent being concessed, and that increase was clearly targeted into occupancy liens in some of these markets like D.C. and the expansion markets are pretty heavy use of concessions right now. As we think about the fourth quarter, I would expect that concessions on an absolute dollar basis will drop off a little bit just because the sheer volume of transactions on the new lease side drops off. But when I look at that relative to move-ins and days being concessed, my guess is we're going to tick up one day and probably be in a position next quarter to say that we've concessed about eight days per move-in for the folks that moved in in the fourth quarter. Concessions right now are sticky in some of the markets. Even in like a market like Seattle that has some decent demand, you just see some more widespread use happening. And I think this is just a function of where you had supply delivered in 2025 and you're still working through the absorption of that supply, and many of the owners of those types of assets increased concessions heading into the fourth quarter, and many of the stabilized assets in those submarkets followed suit. And that's kind of what we're feeling.

My question is on the 4Q '25 blend guide, 50 basis points. I was hoping you could shed some light on the range of expectations there for, say, your weaker coastal markets like D.C., Boston, L.A., as well as some of your better markets like San Fran, New York, Seattle.

Michael here. I won’t provide specific market numbers related to blends, but the trends you see are likely to persist into the fourth quarter. San Francisco should perform well, as will New York. Keep in mind the seasonality reflected in these statistics. Historically, even when looking at data from 2019, we see significant declines in the fourth quarter due to seasonality. Markets like Boston are expected to be more negative in the fourth quarter compared to the third, even if the overall market performs well. Instead of breaking it down by market, I anticipate that the trends observed in the third quarter will carry into the fourth, with a general deceleration across many markets.

Got it. Fair enough. And I don't know if I missed it, but did you give new and renewals for October?

We did not give that, and we're not going to give any kind of spot month kind of stats. I think I gave some of my remarks around the renewal side of the business that the quotes are out in the marketplace, and we have a lot of consistency there and would expect about 4.25% achieved renewal rate increases in the fourth quarter.

Mark, I think just to maybe put a finer point on some of the comments on the expansion markets. I guess with some of the absorption dynamics that you described, I mean, do you expect a normal seasonal curve next year starting in? Or is it going to look different kind of in the way it looked this year? And then similarly, can we expect positive market rents given the trends that you're seeing sort of extrapolating? Just to be clear.

Well, every portfolio is different and every market is different. So you could have people less and more optimistic because of their portfolio composition in a specific place. And again, we don't report to be experts on every submarket in every location. And there's a lot of places in the Sunbelt, like Phoenix, we don't do business at all. So we wouldn't have a perspective on that. I think the answer to that is this job growth thing. If we, as a country, see decent job growth next year, I think the markets will have their normal seasonality. Most markets across the country have less supply in the coastal markets, particularly we've highlighted a lot less supply. I think if we see job growth, I think we are off to the races in our coastal markets. And I think you'll see the recovery begin in our expansion markets in a more profound way than it has so far. So my bet is that this is a pause in jobs, not a significant and long-lived downturn. The big question, to be honest, is whether the pause continues in and through the leasing season. If it gets better in the third and fourth quarter of next year, that's nice, but we will have done and our competitors will have done a lot of their leases by then. So I think, Rich, it's just a question of whether when you start to get to April and May, you're feeling better about the job situation. There are reasons you should, right? I mean the Fed, we expect in a few hours is going to lower interest rates. There is more certainty on the tax and regulatory side than there was even 6 months ago. There appears to be more certainty even on the tariff side, though that is a dynamic input still. So there are a lot of things that look a little better known. And I think maybe employers will be a little more risk on in the new year. So we'll just have to see. But I think the job thing is the key to the whole puzzle, and this certainly is a wildcard at this point.

Yes. And just to understand the variation because that you're sort of highlighting that, that's $16 million of total difference. We do have our overhead stuff. A lot of the bonuses and other things, frankly, are determined in the current period. So we don't know those numbers. The same with a lot of medical reserves and things, Rich, that kind of are inside baseball and not particularly interesting but do have an effect on the numbers. So that was just giving us the ability to deal with those in the period. I mean we obviously feel good about the midpoint or we wouldn't have said it there, but there are puts and takes at the end of each year, and they are, frankly, relatively unpredictable and uncorrelated to each other.

So I guess just some of the line items in our model, we're hoping to get a little more clarity on as we think about '26. Can you talk us through your latest thoughts on loss to lease, if the pushout of other income will affect '26 at all, like there will be any kind of bump there that we should be thinking about? Any thoughts on your insurance renewal for March? And then any other key expense line items we should be thinking about?

Wow, that's the gamut. It's Mark. I'm going to have Michael speak to loss to lease, which right now is to probably be by the end of the year a gain to lease thing and other income a little, and I'll talk to insurance, and we'll work on expenses for you a little bit. But we are, just to be fair, rolling numbers up. I mean we don't have visibility into a lot of these numbers at the level of precision I think you're asking, but we can talk directionally.

Yes, Mark just mentioned it. Currently, the portfolio shows a gain to lease of about 1%, similar to where it stood in November 2024. While we initially expected a bit more pricing power during this peak leasing season, everything seems to be consistent, with many metrics indicating that changes are occurring about a month earlier than usual. I foresee starting 2026 in a favorable gain to lease environment, leading us through the leasing season. As Mark noted, various factors will influence how quickly we transition back to a loss to lease, similar to what we experienced in 2025 when we began with a moderate gain to lease that swiftly turned into a loss. Additionally, regarding the shift in other income we observed in 2025, it's primarily a timing issue, involving a couple of million dollars being deferred from 2025 to 2026. This will benefit us in 2026, but we are still in the process of consolidating information to accurately determine the total contribution from other income to our revenue.

Yes. And insurance, just to hit on that, for us, pretty small line item, 3% or 4% same-store expense a good number this year after some really outsized numbers. Let's see how the rest of the hurricane season goes. We don't have hurricane exposure in our portfolio, but it does affect the marketplace as a whole. So right now, it feels like the loss history or losses these insurers have incurred hasn't been very high. But we'll be pretty careful and thoughtful, Jamie, like we always are on the fourth quarter call with the building blocks on revenue. I mean, clearly, there is going to be more emphasis on intra-period revenue growth next year to get to good numbers because the embedded will be good, but about the same as it was this year. I think we got something we can give you on occupancy because some of the markets are very, very highly occupied like New York. But we have opportunity in Los Angeles and some of these expansion markets, and that number has opportunity. I think we continue to have really good, interesting other income initiatives that provide value to our residents that continue to roll out successfully. And there's pluses and minuses in timing, but those will be in there, too. So there will be a pretty fulsome discussion with you when we get there. But I feel confident about next year. It feels like the setup is good. And the biggest thing we need is just some level of job growth. And then I think we're off to the races.

Okay. Great. That's very helpful. And you guys have quoted a couple of times now the 6.2% income growth since 2019. If you were to mark that over the last 12 months or even thoughts going forward, like where are we today on that number? And how does it differ across your markets? And what does that tell you about your ability to push rents?

So Jamie, just to clarify, 6.2% is year-over-year for all our new residents across the whole portfolio. 22% is the increase of all employment in the San Francisco Metro area in wages. So it's grown by 22% since 2019, not just our residents, just in general, incomes have and rents in the market are a little above, but in the downtown area below what they were in 2019. So that's what we meant by that. Is that helpful clarification?

Yes, I was thinking more about other markets. Are you seeing deceleration or acceleration? I assume that will significantly influence how much you can increase rents. Is there anything else that stands out to you when you review the data?

I mean I guess I would just look at what I would say as an affordability index of rent as a percent of income. And based on new move-ins coming in, in the quarter, we're running just below 20% rent-to-income ratios, which gives us a lot of confidence in the financial health of our consumers and the ability for them to be able to absorb kind of whatever the market rate growth is.

And income growth has been pretty good across all our markets. It's that rent growth is widely varied. So some places, rent growth has been relatively significant until two years ago and then went down like in the Sunbelt markets. But places like Seattle and San Francisco, that's the dry powder that people, if we give them a great experience and if the supply picture improves, we have a bigger opportunity there because they have good incomes and they've had good income growth in nominal dollars, while rents in nominal dollars haven't moved very much.

You're probably going to hate this question. But Mark, you mentioned that your Sunbelt markets are seeing a significant lack of pricing power, and that's due to the lingering impact of new supply. You've been talking about that for the last several years. Michael, you mentioned that net migration trends are favoring San Francisco and New York due to tech and AI demand. Yet this quarter, your Sunbelt concentration continues to grow with the acquisition in Arlington. But just given those dynamics that you're seeing today and the fact that your same-store NOI in expansion markets are down 7%, have you thought about pausing acquisitions in Sunbelt?

I appreciate the question, John. We're dedicated to maintaining a diversified portfolio that can withstand various market conditions. As we mentioned at Investor Day, our goal is to balance opportunities and risks related to supply, demand, regulation, and resilience, aiming for a portfolio that consistently drives cash flow growth. Currently, it's not in our shareholders' best interest to rush into expansion markets not only due to anticipated performance in those areas but also because of pricing concerns. Previously, we acquired properties at more favorable prices, but now the cap rates being presented to us and the premiums on replacement costs don't align with our long-term investment strategy, especially considering our current stock valuation. While we value diversification over the long run, we are focused on making the best decisions in the present. The buyback this quarter, and potentially in the future, benefits us by divesting lower growth assets in our existing coastal markets, which enhances our NOI growth rate moving forward. Additionally, we're effectively increasing our percentage exposure by reducing the denominator from these expansion markets. We see a strong arbitrage opportunity between private and public investments. However, we're not operating under any time pressure; we'll pursue opportunities that enhance our position, and if such opportunities don't arise, we may either hold off or repurchase our shares.

Okay. Michael, you mentioned in your response to Brad's question about what you're seeing in D.C. today that net effective pricing is down 4%. And I just wanted some clarification on what that meant. Is that what you're seeing currently on leases signed or what you're seeing kind of year-to-date?

Yes, this is Michael. I want to clarify that I am specifically referring to the micro submarket of D.C., particularly the Northwest area, while excluding portfolios from Maryland and Virginia. When I talked about the rates, I was referring to our pricing trend. Essentially, if you look at our website and compare the net effective price along with all concessions to the same day last year, using the same methodology, you can see where rents stand year-over-year. However, the new lease changes aren't directly correlated because they depend on individual situations of who moved out and who moved in, along with the time between those events. The snapshot of current rents year-over-year indicates where we feel pressure in certain isolated areas. What I meant by that is just a reflection on the current market.

Could you talk about what you're seeing in the transaction market and just the quantity of for-sale supply in your markets? What does the kind of bid-ask spread look like? And could you put that in the context of the share buyback?

Yes, Alex, it's Bob speaking. I'll begin, and some of the team may add to this. Regarding transaction volume, we are observing solid activity in the private markets. As Mark has pointed out several times during this call, there is a noticeable disparity between the public and private markets. Overall, transaction volume is comparable to 2024 levels, which, in a broader historical context, is about half of what we experienced before the pandemic but is currently on the rise. Different markets and asset types tell different stories. For assets priced between $80 million to $100 million, which are relatively new and have minimal value enhancement, there are many bidders, a fair amount of transactions, and sellers are achieving favorable prices around the 4.75% cap rate mentioned by Mark earlier. Conversely, for larger transactions or mixed-use assets, interest is low, and there aren't many bidders. This trend also extends to certain geographies where operational momentum is weaker, leading to less activity. However, there is still ample private capital available, which is quite liquid and competitive in pricing. As we've noted on this call, our opportunity set is currently more favorable.

Got it. Yes, I appreciate the detail there. And then I noticed that the completion date for your unconsolidated development in Washington State was pulled forward about a year. Could you talk about what allowed for the faster construction timeline?

Yes. So Bret and I were actually just out there in August. And it's a market where the rain and seasonal patterns matter a lot, and they got the footings in early and some of the more complex riskier excavation work done faster than they thought, and it was just kind of binary. And it's moving along really, really well. Kirkland is a great place to have a brand-new asset. We're really excited about that and thrilled that we'll be getting our hands on it a little sooner. But it really was we made a sort of average estimate on how long it would take. And some of this more complex and riskier, frankly, excavation and other work just got done really quick and really well without any problems at all and off to the races we are now with framing and a lot of stuff that is generally more routine.

As we're about to go into the election cycle, just curious if there are any states or counties that you're kind of watching for anything on any kind of ballot that could have an impact on your rent practices? And then specifically also kind of around New York, any thoughts on the mayoral race and any potential implications?

Sure. It's Mark. Thanks for that question. I'll start with a more optimistic perspective on regulation. We've seen positive developments in California under Governor Newsom, who has passed a new law that liberalizes zoning in transit-rich areas to increase housing supply, which is great public policy. This is similar to initiatives in Florida. There are many regions where efforts to boost housing supply are underway. The Senate recently passed a bipartisan bill supporting housing, which is a positive step, although the federal government has fewer tools compared to states and localities. Regarding areas of concern, we've discussed New York in previous calls. We expect Mr. Mamdani to win, and our industry associations have been in talks with him. He has expressed a desire to significantly increase housing supply in New York. Private sector builders are key to achieving that. Our message to him is that we're ready to help augment New York's housing supply and that rent control is detrimental. By the time he potentially takes office and the rent control stabilization board addresses these issues, we believe only a small fraction of our units will be at risk. While it's not a major concern for us directly, we want to maintain dialogue with him as mayor and advocate for supply-side solutions, such as the new 421a program. We are also monitoring Seattle, where an important mayoral election is happening next week, which will be significant for the city's progress. Overall, we've noted many positives alongside areas needing our attention as an industry.

That's helpful. Then one more for me. From an operating expense perspective, kind of any other opportunities to kind of keep making progress there? Again, I know like same-store payroll was down like 2% year-over-year. So just curious, any other levers that can be pulled in that area to kind of contain operating expense growth?

Maybe I'll start and Bret can provide some additional insights. In terms of operational excellence, the truth is we are always striving for improvement. This goal is deeply embedded in our company culture. In my prepared remarks, I highlighted some of the initiatives we are pursuing, which involve further automation and centralization. These initiatives will contribute to reduced payroll and improved operating efficiencies within our portfolio. We are truly excited about this. I wouldn't say we are just beginning; there is still significant opportunity ahead for us to become a more efficient operator by utilizing technology.

I might add, just I think one of the things we called out was utility expenses were a bit higher. I think one of the areas that stood out was cash. And I think there's some opportunities for us, as Michael alluded to, to put some best practices in place where we can actually really drive that specific number down. And I think that will be helpful as we go into next year.

Thank you, Shelley. I thank everyone on the call for their interest in Equity Residential, and we'll see you on the road over the next few months. Thank you very much.