AvalonBay Communities(AVB) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - AvalonBay Communities reported a revenue growth of 2.1% for 2025, with a turnover rate of 41%, the lowest in the company's history [4][5] - The company raised $2.4 billion of capital at an initial cost of 5% during 2025, positioning itself for continued investment in 2026 [6][7] - The quarterly dividend was increased to $1.78 per share, reflecting a conservative payout ratio in the industry [9] Business Line Data and Key Metrics Changes - The company expects modest revenue growth of 1.4% for 2026, driven primarily by an increase in lease rates and a better mix of jobs [8][13] - Development earnings are projected to increase significantly as projects lease up during 2026, despite funding costs from previous developments [9][25] - The company started $1.65 billion in projects in 2025 with a projected initial stabilized yield of 6.2% [5][27] Market Data and Key Metrics Changes - Revenue growth in New York and New Jersey is expected to be around 2%, driven by contributions from New York City and Westchester [14] - The Mid-Atlantic region is projected to see just under 1% revenue growth due to job losses in the back half of 2025 [16] - Northern California is expected to produce mid-3% revenue growth, supported by stable occupancy and lease rate growth [18] Company Strategy and Development Direction - AvalonBay aims to utilize its scale and investments in technology to drive incremental growth from its existing portfolio [8] - The company is focusing on a conservative approach to new starts, limiting activity to $800 million in 2026, with a strong spread to underlying cap rates [9][25] - The company is well-positioned with a high-quality portfolio and one of the strongest balance sheets in the REIT sector, despite expecting modest growth in 2026 [12] Management's Comments on Operating Environment and Future Outlook - Management anticipates a job growth environment slightly stronger than 2025, with 750,000 net new jobs forecasted for 2026 [10] - Demand for apartments is expected to be supported by favorable rent-to-income ratios and the relative attractiveness of renting versus homeownership [11] - The supply outlook indicates only 80 basis points of stock this year in established regions, which is expected to serve as a tailwind for the company [11] Other Important Information - The company expects same-store operating expense growth of 3.8% in 2026, driven by the phase-out of property tax abatement programs and other factors [20] - Legislative actions in Colorado and California are impacting the ability to charge certain fees, which is expected to drag on other rental revenue [80] Q&A Session Summary Question: Renewal rates and expectations - Management indicated that renewal offers for February and March were in the 4%-4.5% range, but actual settlements are expected to be lower, typically around 100-125 basis points of dilution [32][33] Question: Guidance lessons from 2025 - The company emphasized a detailed process for setting guidance, considering both upside and downside scenarios, with confidence in development earnings being more concrete [44][46] Question: Development starts and market conditions - Management noted that the reduction in development starts was due to both a lack of suitable deals and a conscious decision to be cautious in a choppy environment [50][53] Question: Impact of legislative activity on revenue - Management highlighted that new legislation in Colorado and California is affecting revenue, with ongoing monitoring of potential political initiatives [80][81]