Apartment REITs Earnings Call Recaps, Part 1

Sponsored by: Madera Residential and JPI

This is the first in a series recapping highlights from Q4’24 earnings calls among the rental housing REITs. Today’s edition covers four of the Big 6 apartment REITs: AvalonBay, Camden, Equity Residential and Essex. The next edition will cover MAA, UDR, IRT, Elme, Clipper and Centerspace. The third edition will cover the single-family rental REITs plus the remaining small apartment REITs. (INVH is the last to report this quarter, on Feb 26.)

Shameless plug before we dive in: Check out The Rent Roll with Jay Parsons podcast for more on the REITs on your streaming platform of choice (Spotify, Apple, YouTube and Amazon). The latest episode (out now) features a Top 5 takeaways on the big apartments REITs’ earnings call plus a conversation with Camden CEO Ric Campo.

***Lastly: As always, this commentary is not investment advice (nor should it be interpreted as such) — just stuff I found interesting.***

AvalonBay (AVB)

National portfolio with 93k units, primarily coastal suburban.

1) AvalonBay expects to ramp up its apartment construction by 50% in 2025. While REITs represent a very small share of U.S. apartment construction, they have big advantage over most builders in that they have lower capital costs -- so AVB and its peers want to build while most others can't, and deliver those units into lower-supply years of 2026-27.

2) For new construction, AVB is focused on two very different regions: California and the Sun Belt. AVB (like others) is building wood-framed suburban garden properties. They're lower cost to build, and that's what pencils out right now.

3) AVB continues to report strength in its primary footprint of coastal suburbs, thanks to "steady demand and limited new supply." Plans to expand its suburban exposure from 73% to 80%.

4) AVB sees higher regulatory risk in cities, noting they sold assets in cities of Seattle, L.A. and Boston. And now also in DC suburb of Montgomery County (which passed rent control). AVB made clear: Regulatory risk/uncertainty = less chance of investing in those cities/counties.

Cities that demonize investors and developers are playing a lose game of “chicken.” Developers and investors are increasingly signaling they’ll go where they’re wanted — which just exacerbates housing shortages in certain cities.

5) Regulatory risk isn't just rent control, but also evictions. Some cities have slowed the process even in cases of fraud, and that's keeping "bad debt" (unpaid rent) elevated relative to pre-COVID norms in those cities. (Also noted new tech helps mitigate risk at front end.) Called out New York City, Washington DC and Montgomery County MD.

5b) AVB's call occurred prior to L.A. city council's failed vote for eviction moratoria and rent freezes following the wildfires. But in advance of that, AVB noted such measures would inevitably backfire. "We need more housing for those folks, not less." AVB was one of several REITs who’ve become more direct in calling out political dysfunction in Los Angeles of late.

6) Reduced regulatory risk remains a big driver in AvalonBay's expansion into the Sun Belt -- as does growth among upper-income "lifestyle renters." AVB increased its expansion market exposure (Sun Belt + Denver) from 8% to 10% last year, and targets 25% exposure.

7) AVB plans to march toward 25% Sun Belt + Colorado exposure by not only new construction, but also "selling assets out of our established coastal regions and redeploying that capital into acquisitions primarily in our expansion regions … We’ll look to increase our portfolio trading where we can.”

8) Expanding into the Sun Belt has been tough to do given lack of attractively priced deals in the market. AVB unexpectedly ended up as a net seller in 2024, but "we have some spending money" from those dispositions to fund acquisitions in 2025 if attractive deals emerge.

9) Asked about impact of tariffs, AVB gave a very insightful answer detailing the cost breakdowns of new construction. Estimated $5-7k per unit additional potential costs. Also noted: Labor is "much more important" than materials, and have seen better costs of late as more subcontractors are looking for work. (Immigration policy didn't come up on call, but other REITs mentioned that as potentially inflationary for construction labor depending on what happens.)

10) Like others, AVB noted wage growth continues to outpace rent growth -- pushing down rent-to-income ratios, even below 2020 levels. Affordability is a demand driver again, as is significant discount to rent versus buy.

11) Even with a lesser-supplied geographic footprint than many of its peers, AVB is forecasting a broadly similar pattern as others in 2025: Minimal new lease rent growth (~1.5%) plus steady renewal rent increases (mid 4s).

12) Among markets, AVB expects continued strength in the Mid-Atlantic (DC) — like other REITs, not indicating any significant concern with potential cuts to the federal workforce. But probably most notable that AVB is forecasting better revenue growth in California than in New York or Boston. Forecasts Miami metro area as its laggard.

13) Like others, AVB expects expense growth to outpace revenue growth in 2025 -- partly due to some significant costs (insurance, merit pay adjustments) expected in the first half of the year. But still forecasting positive NOI growth.

14) But at the same time, AVB reported significant efficiencies + ancillary revenue stemming from centralization efforts (moving traditionally on-site work to a central location) and other technology. Reported $39m in NOI improvement from those initiatives.

15) On related note, AVB reported 15% growth in "other" (non-base rent) revenue in 2024, and expects another 9% growth in 2025. "Other" revenue includes things like WiFi -- which property owners contract in bulk and then provide to residents at (typically) discounted rates. Most of the REITs echoed similar themes on revenue growth stemming from bulk WiFi.

Camden Property Trust (CPT)

National portfolio with nearly 60k units, primarily Sun Belt

1) Supply peaked, revenue outlook improving, and time to move back into buying and building apartments. To set the tone around that message, Camden kicked off its call with Tom Petty’s “Time to Move On” song playing.

2) Camden likened 2025 to the post-GFC recovery era in early 2010s -- when Camden (and others) started buying and building again. One big priority: Recycle capital, which means selling older properties and buying/building newer ones.

3) It's been a tough market for apartment buyers (not much to buy an attractive prices) but Camden thinks sellers will be more motivated in 2025 and buyers will get more aggressive now that supply has peaked and rents show signs of rebounding.

4) Camden is also looking to better diversify its footprint, which means reducing exposure in two of its current hottest markets (DC and Houston), and expanding exposure in one of its current colder markets (Nashville) -- positioning for the next cycle.

5) Speaking of markets, Camden singled out top performers a unique trio of SoCal, Houston and DC -- 3 markets with little in common. But worth noting Camden sees SoCal stronger outside L.A. City/County (see clip from my podcast last week of Campo talking L.A.)

6) Austin and Nashville -- two high demand but higher-supplied markets -- remained Camden's weakest spots. But Camden indicated long-term belief in both spots, and noted Nashville as a market for continued expansion.

7) New lease rents are still falling due to weight of supply, but Camden is seeing incremental improvement -- and expects more by second half of 2025 as supply drops off. Believes 2026-27 will be "impressive for the entire multifamily sector" and especially Sun Belt.

8) Still expecting slightly negative new lease rents in 2025 as lease-up pressures continue to work through the market, but expecting improvement as year goes on. Expecting renewal rent increases in the high 3s.

9) Like other REITs, Camden said renter financial health remains strong with declining rent-to-income ratios. Also: "Resident retention and customer sentiment remains high."

10) Camden got some analyst questions on DC (one of their biggest markets), and said it's somewhat of a "crapshoot" on what could come of the "cross currents" between reduced federal workforce + return-to-office requirements.

11) Like others, Camden is building some build-to-rent single-family rental communities. Noted their new BTR communities are leasing up slower (some interesting color below) but expected to see lesser turnover once leased.

12) Interesting comment: Camden is looking at converting some underused amenity spaces (i.e. indoor basketball courts) into apartment units. Broadly speaking, developers in last couple cycles built a lot of high-end amenity spaces, but many often sit empty.

13) Back to capital markets: Camden (like others) doesn't see distress opportunities in the categories they (and other REITs / institutions) want to buy. Most is concentrated in older, more challenged segment of market. Not clear who that buyer pool is yet.

14) While not true "distress" fire sales, Camden (like other REITs) is seeing attractive opportunities to buy newer apartment properties priced below replacement cost. "Why build when I can buy it below replacement cost?" (Camden does plan to do some new builds, too, though.)

Equity Residential (EQR)

National portfolio with 77k units, primarily coastal

1) Lowest renter turnover in 30+ year history of the company. (And don't just credit slow for-sale market.) Turnover for calendar 2024 came in at 42.5%.

2) High occupancy rates has helped improve pricing power. Sending out renewal offer letters at ~7%, expecting around 5% renewal rent growth. I suspect this will likely be top end of market spectrum due to EQR concentration in low-supply markets.

3) New construction doesn't generally math out quite yet unless building "simple product" (i.e. "cookie cutter") in further-out locations — which EQR doesn’t appear to want to build. That was sharply different from other REITs, most of whom announced increased starts for 2025 even if the short-term math was still challenging. (Other REITs are banking on delivering into lower-supplied environment in 2026-27.)

4) EQR's take on office-to-residential conversions: Overrated. "They take longer, cost more, and come out with less attractive projects than people think they will." It's a sobering comment given all the buzz, but he's not wrong.

5) But ... EQR (like others, both public and private) wants to be a buyer of newly built apartments (especially in Atlanta, Dallas, Denver) from merchant builders needing an exit in 2025. And EQR says they're well positioned to execute quickly.

6) EQR continues to expand into Atlanta, Dallas and Denver. (Austin appears to be on pause for now due to high supply.) EQR emphasized "best balance of long term demand, supply, regulatory and resiliency opportunities and risks" in portfolio diversification.

7) L.A. took up a lot of airtime given hostile regulatory climate + wildfires. Called out L.A.'s "terrible ideas" hindering new supply. "If you want to encourage housing production you have to send the right signals. And I think more and more regulation is not the signal." Later said: "I would call out Los Angeles as still a market that probably doesn't have that, especially central downtown Los Angeles, that developed level of interest institutionally." In other words: America's second largest city isn't really an institutional "core" market right now, echoing themes we heard at NMHC last week.

8) EQR is seeing some additional demand likely resulting from the wildfires, and taking careful approach on pricing. But also concerned regulatory actions there (blanket eviction bans and/or rent freezes) could impact performance, further delaying lagged recovery from COVID era.

9) It's a better story for EQR elsewhere in California. EQR highlighted Orange County and San Diego as "better performers" and hailed the new mayor of San Francisco for "improving the quality of life in the city." EQR seems bullish on San Francisco finally finding its groove.

10) Similarly, EQR remains bullish on Seattle. Noted that "pricing power held up" in Q4 (normally a seasonally slow period) even with substantial supply hitting the market -- highlighting chronic undersupply and pent-up demand for Class A apartments.

11) On the East Coast, EQR reported continued good performance in Boston and New York. Noted lack of new supply competition in downtowns of both markets.

12) Washington, DC, remains strong too -- as it has been for most operators there. But some open questions about the impact of two competing forces: federal workers returning to work + potential reductions in the federal workforce.

13) In what EQR calls its "expansion markets" (Sun Belt + Denver), EQR highlighted strong demand but even stronger supply in some spots. Noted better recent numbers in Atlanta and Dallas than in Denver, where new supply has had greater impact. Note: I highlighted Denver's newfound struggles in a recent post, and one challenge here is the uniquely high share of the cycle's supply wave completing specifically in the 2nd half of 2024.

14) EQR noted improving expense pressures, in part resulting from industry-wide trend toward centralizing and automating certain tasks (+ reduced renter turnover costs). Another sign the industry is finally achieving efficiency gains from centralization efforts.

15) Lastly: Good color on potential insurance renewals for 2025 -- a big concern across the industry. EQR says they went to London and got good indications that L.A. wildfires may not result in large spikes in premiums (at least for national averages, presumably).

Essex Property Trust (ESS)

West Coast portfolio with 62k units

1) Essex has NOT seen any demand surge from wildfire victims in L.A. County, where they own 11k units. Thinks impact is to single-family homes.

2) But more broadly, ESS has seen a strong start to 2025 -- with occupancy already up 40 bps, primarily driven by California's Bay Area.

3) Bay Area has been a laggard nationally since COVID hit, but ESS sees upside and momentum (especially in suburbs) -- with more tech companies bringing workers back to the office. ESS is buying there again and expects to keep buying in 2025.

4) Essex piled on with others' recent criticisms of Los Angeles governance. ESS said recent proposals (eviction moratoria and rent freeze) are "bad policy" that "deters investments in L.A. and housing production." Unusually sharp criticism from ESS, which is typically restrained. (Note these proposals did not pass on first vote in the city council, which occurred after this earnings call.)

5) Beyond policy, L.A. -- as well as Alameda County (Oakland) -- remains a weak spot in ESS's portfolio (and for other owners, too). L.A. was "very challenged in '24 with low occupancy and negative rent growth." Renter delinquency is improving but still elevated vs. elsewhere.

6) On more positive news: Essex is breaking ground on its first new development in 5+ years. This one is located around South San Francisco, where they see unique opportunity to build.

7) Essex was a net buyer in 2024 and expects to remain an active buyer in 2025. But -- echoing themes from the multifamily investment industry's largest event last week (NMHC) -- sees a tough market for buyers with cap rates in 4s and other investors chasing similar product types.

8) For 2025, Essex sees downside risk to performance coming from regulatory risk (i.e. those L.A. proposals) but upside from tech jobs (especially Bay Area and Seattle).

9) Orange County and Santa Clara County were Essex's top markets in 2024. They expect Seattle and San Jose to be their top spots in 2025.

10) Interesting commentary on suburban vs. urban. While downtowns showing some momentum, Essex (which is predominantly suburban) still heavily favors suburbs. Notes employment hubs in West Coast are primarily suburban, plus urban "quality of life issues."

11) Also some interesting chatter on federal immigration policy. Like others, ESS sees minimal direct impact given that few recent immigrants live in institutional grade apartments. And sees the White House as "pro H-1B visas," which do comprise small share of renters.

12) Essex, like others, is seeing improvement on the OpEx front. Expense growth still elevated, but trending in the right direction -- aided by a recent reduction in insurance premiums.

More on REIT Earnings Season:

The next edition will cover MAA, UDR, IRT, Elme, Clipper and Centerspace. The third edition will cover the single-family rental REITs plus the remaining small apartment REITs. (INVH is the last to report this quarter, on Feb 26.)

As a reminder once again: None of what I write about REITs (or otherwise) is intended to be investment advice whatsoever, nor is it a comprehensive look at any REIT. I just write about the things I find interesting.

***Now Spinning on the Podcast***

The Rent Roll with Jay Parsons podcast continues to rank in the Top 100 podcasts on Apple’s charts for investing-themed podcasts. Thank you for helping us grow so quickly after just 21 episodes! Find us on Spotify, Apple, YouTube and Amazon.

Episode 21 is out now, covering the five big themes from the apartment REITs’ Q4’24 earnings calls — plus an interview with Camden CEO Ric Campo.

Recent Episodes:

Episode 17: The Re-Rise of the Sun Belt with Knightvest Capital CEO David Moore

Episode 18: Build-to-Rent Update with the BTR King, Redwood Living CEO Steve Kimmelman

Episode 19: How Demographic Shifts Impact Renting, with Chris Porter, SVP at JBREC.

Episode 20: NMHC Buzz and Midwest Love with BAM Companies CEO Ivan Barratt

Episode 21: Apartment REITs’ Earnings Recaps with Camden CEO Ric Campo

Disclaimer: The contents of this newsletter are for informational purposes, not investment advice. No recommendation or advice is being given.

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