AvalonBay Communities, Inc. (AVB) Earnings Call Transcript & Summary

[Audio Gap] CEO conference. I'm Nick Joseph here with Eric Wolfe with Citi Research. I'm pleased to have with us AvalonBay, and CEO, Ben Schall. This session is for Citi clients only and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC 25 to submit questions. Ben, we'll turn it over to you to introduce the company and team, provide any opening remarks, tell the audience the top reasons an investor should buy your stock today. And then we'll get into Q&A.

Great. Thanks, Nick. Thanks, Eric, for hosting us. Great to see everybody. I am joined here today by Kevin O'Shea, our Chief Financial Officer; and Sean Breslin, our Chief Operating Officer. I'll start with just a little bit of background on AvalonBay for folks that don't know us, and then I'll turn to the top reasons to own our stock. So AvalonBay, we're a $40 billion enterprise value company, the largest of the public multifamily companies. We've been public for about 30 years at this point. And over that time period, delivered pretty outstanding results for shareholders, 12% compounded annual returns over that time period. We own 300 apartment communities across the country. We're very focused on optimizing our portfolio for superior growth. We have 2 targets that we put out, both internally and externally. One is we're about 7 -- a little bit over 70% suburban today and we're headed towards 80% as our target there. And then the second is we're making strong progress in what we call our expansion market growth, a select set of Sunbelt markets. And including the transaction we announced last week in Texas, we're about half of our way towards our 25% target there. Organizationally, we are focused on a set of strategic initiatives that we are confident will deliver superior growth in the years ahead, and we'll talk more about that today. Sean and team are very focused on what we refer to as our operating model journey. We've identified $80 million of annual incremental NOI that we believe we can drive through the business. We're about halfway through towards that target. So a lot of progress, but also a nice runway ahead of us. Our development growth engine, really a unique part of AvalonBay. And just to give folks a sense, we've developed more over the last 10 years than all of our peers combined. It is a very consistent driver of both earnings and value creation for the company. And then last, have one of the strongest balance sheets in the business. Really the balance sheet is as strong as it's ever been and does position us to pursue accretive growth both this year and over the coming years. That's a little bit about AvalonBay. To Nick's questions on top reasons to own our stock, I'll focus on three. First one is sector-leading core FFO growth. We're guiding to 3.5% core FFO growth in 2025, that is 200 basis points higher than the sector average. So meaningful growth there and really speaks to our ability, as I was talking about before, to drive both internal growth and external growth. Second is we feel like our portfolio, particularly with its heavy concentration in the suburban coastal markets, is very well positioned in the near term with steady demand and just significantly less new supply than really any other markets around the country. And in the medium and longer term, well positioned in terms of where demographics are heading, particularly the lifestyle and housing choices of aging millennials. And then third is rich menu of investment opportunities. We're really looking for opportunities to bring together both our balance sheet strength and our strategic capabilities. On the development side, we feel like we're in a window right now where we can get an outsized share of what will be a lower overall level of development starts in the industry. And then on the acquisition side, assets are worth more on our platform. And so we're looking for opportunities to be able to get assets on our platform, particularly on the operating model side to drive incremental growth. Both of those provide us what we think is a pretty strong opportunity to accretively grow this year and in the coming years. So I'll stop there, and Nick and Eric, turn to you guys for additional questions.

Yes. So maybe we'll start with the Texas acquisition. I think it was about $620 million, around there, in sort of gross value. Can you maybe talk about the underlying rent assumptions, the initial yield, where you think that yield can go over time, so call it the stabilized yield. Just the valuation that you assume there and your funding strategy for it?

Yes, sure. I'll start, and Sean and Kevin can add in. So it was 600 -- we announced the deal last week, $620 million worth of assets, 2 assets in Austin, 6 assets in Dallas. The basis, which was really the -- one of the leading drivers as we think about kind of KPIs on the deal, $229,000 per door. We have been -- it very much fits what we would consider sort of our strategic box of looking to grow through new net acquisitions in our expansion markets. But this is what's different about it, and this is a differentiator relative to our peers, a focus on suburban, a focus on slightly older assets, lower density assets. And this portfolio, as an example, average rents of $1,675 per foot -- per month. So right in kind of that sweet spot for us as we think about growth going forward. I feel like we paid fair value, as we indicated in our press release, sort of initial going-in cap rate in the high 4s. And then connecting it to my comments before, we believe by getting these assets on our platform, we have the opportunity to generate an incremental 30 to 40 basis points fairly quickly and get this initial yield up into the low to mid-5s. I'll turn it to Sean to talk a little bit about sort of our operating assumptions and then Kevin can talk about how we're funding the transaction.

Yes, in terms of the underwriting, what I'd say is the portfolio, our assumption has a modest gain to lease in it. And so the cap rate that we quoted kind of in the high 4s reflects the rent roll rolling down roughly about 1% during the first 12 months. And then based on the incremental sort of value-add, bringing those assets onto our platform, we do expect it to stabilize probably in the 5.2%, 5.3% range in terms of the stabilized yield. And then in terms of the overall funding strategy, Kevin, do you want to walk through that?

Sure. So Eric, out of the $620 million of rough uses in buying the portfolio, about 2/3 of it is going to be matched with the combination of disposition proceeds and essentially equity issued at $225 a share through DownREIT units that are convertible into AvalonBay stock. So of the $620 million, about $190 million is -- relates to the Austin assets, which we'll close first and are going to be funded from like-kind exchange proceeds from dispositions, about $190 million from cash on hand, about $240 million is the DownREIT units that I just referenced.

How does that basis per door compare to what you think new product would be in the market?

Yes. So from a placement cost standpoint, we think this product is somewhere in the range of sort of 15% below replacement cost, and we obviously have this. And to a certain degree, that's appropriate, right? This is an 11-year-old product and so we have probably one of the most relevant data points. We are building a lower-density garden product, heavy townhome product in Austin -- in the suburbs of Austin. And it's on that basis will wind up being about 15% higher. And as we think about growth, particularly in these expansion markets, we are thinking about how do we tailor the portfolio and optimize the portfolio. And to do that, we feel like we need the mix of these acquisition assets that are slightly older, slightly lower price point because they do then really complement what we're developing, which inherently still suburban, generally still lower density, but is newer -- higher basis going in and a slightly higher rent point going in. So we like that combination. And I think as you've seen our performance in a lot of our expansion markets, that suburban orientation, that lower density orientation, we consciously did that because we felt like it was going to be better protected from new supply, both near term and long term, and that has proven itself out.

One other thing I'd stress for the group is that what we're targeting in terms of the acquisitions is a pretty simple garden product in these markets as compared to maybe some of the asset types you're seeing in our coastal markets, which tends to be higher density, mid-rise, wrap, podium product. And that's really in some of the expansion markets that do have slightly lower NOI margins, you are reducing the CapEx intensity by having simple garden product here, no elevators, [ no conditioned ] corridors, the carpet, the hallways, no major central systems, things of that sort. So it does keep the CapEx burden appropriate for this type of asset.

Got it. And I guess 2 questions on that. I guess why is the more suburban product more protected against supply? And then second part, if you think about people's strategy in the past, it was trying to be sort of not near sort of higher density areas, high income growth, being around a customer that has the ability to absorb large rent increases. How confident are you that this customer can absorb above inflationary increases, especially at a time when some of these sort of lower-end customers are feeling the pain of inflation and other things? And then second part is I think you said that you got 50% of the way in terms of your goal on the expansionary side. I guess, more broadly, we've spent so many years talking about how the Sunbelt was a little bit more inferior to the coastal markets because of supply issues, because of some other things. I guess, why has that changed -- why has your view changed over the last couple of years on that?

Yes. I'll make a couple of comments. So let me give you one statistic on our recent acquisition in terms of rent-to-income ratios, about 4x rent-income ratio. So it is a customer that is centered around those big job hubs: good incomes, lots of cushion in terms of their ability to afford rent. So we feel very comfortable in terms of this price point relative to the income levels. We're not going out to tertiary markets, but we are focused on going out kind of next ring, first ring, second ring areas, those are areas that have faced less new supply competition. Generally for developers to make the economics work on new construction, they're winding up to going closer in where the rents can support it, wind up going in with a higher-density product. So those are the submarkets that we've consciously stayed away from and really looked at kind of submarket by submarket where we think we can get in and just face less new supply, recognizing that these Sunbelt markets are more susceptible to supply, easier to get approvals than our coastal regions. To your second kind of area of commentary, which is why are we headed to these expansion markets, why did we set our goal of 25%, it really goes back to the theme around optimization. We recognize that, in today's world, there are more, what we consider AvalonBay's core customer, that knowledge-based worker in these types of markets. And so we can take what we do well and bring it to those customers. And then there's also an element of diversifying away from certain risks, including regulatory risk. And so that's been a part of our move. We've done it in -- we've made our move towards our 25% target in a fairly measured way and that has proven out to be a wise choice. Cap rates when they were in the high 3s, basis a lot higher, rents a lot higher. And if you take Austin as an example, Austin can still face trouble over the next couple of years. But when we think about where Austin was, where Boston is relative today, both in terms of rents and in terms of basis, we feel like there's an attractive window now for us to be stepping into these types of opportunities.

Then I guess there's a question from the audience. When do you believe the Sunbelt market oversupply inflects in terms of looking at opportunities in certain expansion markets?

Yes, my general response to the kind of inflection categories, I think there's an overemphasis on trying to figure out when these inflections happen. We really do -- we are investing for the long term here. And when we look at rent growth even over a 3-year period, 2025 to 2027, we think that growth is going to be the strongest in our suburban coastal regions. And really, for us, it's just thinking about tailoring and adding on some optimization in a select set of Sunbelt regions.

Got it. And then a follow-up on the BSR transaction, just how it came about, did you cherry pick it, how long you were in dialogue with them for before this came? I guess it's a publicly traded, I think, a Canadian company, right?

Yes. So BSR REIT, it is based in Little Rock traded on the Toronto Stock Exchange. It was directly sourced. We reached out to them. We've got a fairly tight buy box in terms of the types of assets and the types of markets we want to be in. There was a heavy overlap there. We developed a relationship with them and feel like we struck a win-win type of opportunity. We were able to get assets on to our platform at a time where our teams in those markets are really ready to scale. And on their side, they were able to get fair value for these assets, and for a subset of their shareholders, find a tax efficient way for them to get their OP units over into AvalonBay DownREIT units.

Got it. And then there's a question on the yield for the Austin development, and maybe I'll just ask a sort of broader question along with the yield on the Austin development. You and your peers have talked about the next couple of years looking very, very good because supply is coming down or you look at the percentage of competitive starts in your markets, it's down significantly from COVID and down, I think, from a sort of more normalized run rate. But yet you're kind of making the math work. So increasing development this year. The yields have been generally higher than I think one would expect. So maybe talk about how you're able to do that, and then specifically on the Austin development, how you're able to kind of make that math work as well.

For sure. So we are targeting development yields in today's environment in the low to mid-6s. And for folks that know us, that arrives out of our focus over cycles and maintaining a 100 to 150 basis point spread between those development yields and both our underlying cost of capital as -- whereas we see underlying market cap rates. So in that -- in today's world, in that low 6% range, we feel like we're in a good strike zone. We were fortunate in that we were able to proactively raise equity capital last year through an equity forward. So the developments that we're planning to start this year, $1.6 billion of developments, primarily funded with yesterday's -- last year's equity capital raise, $900 million sourced in the, call it, circa 5% type of range. So a nice 100 to 150 basis point spread between that cost of capital and the development. And then on the market cap rate side, we can talk some more about the transaction market, a little tough to pick today, but let's call it the underlying market cap rate in the 5% type of range. So again, being able to develop in the low to mid-6s we think provides investors with the needed spread between those development yields. And for us, it's really just we get that momentum going, self-funded, consistent development generation growth. And one emphasis point I make you just think about over the next couple of years, to a certain degree, 2025 from a development NOI standpoint for AvalonBay is actually a little bit of a trough. We're down versus where we were last year. And just based on projects that we have under construction, we should be going back up in terms of NOI next year. So when we think about earnings drivers in '26 and '27, when these projects come online, that will be a nice incremental driver of both earnings and value creation.

Got you. And there's a question, I think a follow-up there. So just based on cap rates you're seeing in expansion markets and what you paid for the new assets, how does the expansion acquisition opportunities compare to developments? I think effectively the question that we're getting from a few people is like why buy in the sort of high 4s if you can develop new product into the 6s.

We think there's -- we believe there's an opportunity to do both. It's not -- we don't need to be in an either/or type of situation. It's very project-specific, very submarket-specific. And going back to my commentary before, here, we're buying 11-year-old product, a certain profile, a certain price point and we can develop at a newer product, slightly higher price point oriented towards a different type of customer, kind of a customer that's one step up. So we think about that optimization across these markets. We think there's an opportunity. And as you're seeing from us, we think we can lean into both of those growth drivers right now again, again given a combination of what we can bring to these assets by getting them on our platform as well as tapping into the strength of our balance sheet.

Got it. Maybe we'll switch, well, there is one more question that just popped, a lot of interest on this. So I guess tariff immigration status is fluid. How much impact could it have on construction cost, development yields. I think you went through some of it a bit on your earnings call in terms of sort of soft costs versus hard costs. But maybe just quickly tell people though what you think is going to happen if these sort of tariffs stay in place?

Yes. First and foremost, obviously, very challenging to predict what the -- what tariffs are going to wind up being, what policy changes are going to be and then equally challenging to figure out how that's going to flow through apartment fundamentals and construction fundamentals. We are focused on it, as you would imagine. We've done analytics that if all of the tariffs that are being talked about are passed through the system today, on our sort of mid-rise, garden type of product, we're probably talking about somewhere in the 2% to 3% construction cost range, call it $6,000 to $7,000 per unit. So obviously, not headed in the right direction, but not a huge barrier. And a large part of that is if you think about a project, 60% of it's hard costs. And of that 60%, about 2/3 is actually labor, right, not the types of things you'd be buying with tariffs on it. The other part, which is going in our way on construction costs today as starts are coming down and given AvalonBay and our long-standing activity, particularly in our established regions, we're seeing some really good buyouts. Matt talked about it on our call, we have a book of business where our, on a pro forma basis, development costs are actually below pro forma today. So there's the opportunity there, which I think about as sort of an offset against some of that potential construction cost risk.

Any other questions on the asset acquisitions and capital allocation development before we move on to the operating update? You can always jump in later, if you want. But -- so maybe just the operating update. I think it's in your presentation so people can look at it. But maybe just kind of tell us sort of what you've seen so far this year. It seems like it's matched your expectations versus based on what you put in the press release. I do think at this time last year, you did say that it was kind of running ahead, I think, by 45 basis points. Didn't say that this year. So just maybe help us understand what you guided to, whether what you're seeing so far is consistent. If there's any sort of the leading indicators in the peak leasing season that might tell you about the strength that's coming.

Yes. Good question. So I mean, not a lot has changed in the last 3 weeks or so since our call. But as we indicated in the press release that things are trending pretty consistent with our expectations. We did expect improvement in both economic occupancy and rate change. And as we noted in the press release, you've seen a movement in a positive direction in both cases. Still too early to tell in terms of how the full year is going to play out. But I'd say, thus far, the patterns that we would have expected in terms of overall leasing velocity, renewals, et cetera, is basically tracking with plan.

Got it. And I guess, maybe stepping back and thinking through what we're seeing this year, I mean, it seems like a pretty good environment. You've got a high 3% wage growth. You have one of the most unaffordable housing markets that we've had in a long time relative to renting. Record low turnover, declining supply growth. I guess why are rents 3% -- growing 3% this year, not sort of above what you've typically historically seen?

Yes. I mean, I think you have to look at everything together. And based on what is happening in the market, there's certainly reasons to be optimistic. We reflect what we think is the best outlook that we came up with as it relates to the forecast for this year combining all the factors. But I mean there is -- there are pressures in the system and so you want to be mindful of pushing customers with rent increases, but to what degree can you do that. And so you need to be mindful of overall inflation pressures that are out there. And when we're pushing renewal rent increases that are kind of, say, in the 4% to 5% range, that's healthy. If you look at what's happening on the move-in side, the seasonal patterns are consistent with what we would have anticipated. And people will get to a point where you can only squeeze so much out of it. So you want to be mindful of that as you're moving through things here. And we think we've found the right balance of growing rents at an appropriate pace, managing occupancy where we need it to be and that's producing from an optimized standpoint sort of in that 3% revenue growth range.

Got it. And I think one of your peers at Investor Day last week and I think it just came up broadly on the call that a lot of comparisons are being made between this period of time and sort of the Great Financial Crisis just because supply came down so much. I guess, do you agree with that sort of comparison that the next couple of years could be not the best that we've seen for multifamily, but certainly accelerating years, very good years? I know it heavily depends on the job market, which is quite difficult to predict. But assuming the demand environment that we have today, I mean, do you think that we could see that similar type of growth as coming out of the GFC?

Yes, it's a good question. I mean, there's a couple of different time periods that come to mind. That would be one. As we're moving through the mid- to late '90s is another one where, I think, if you think about demand being relatively consistent, the supply side of the equation certainly has a very positive outlook for, in particular, our coastal suburban footprint over the next couple of years. If you look at expected deliveries in 2025 in those submarkets, we're down to the low 1% range. As you look at '26, it's probably sub-1%. Last time we have seen sub-1% delivery in suburban submarkets in our coastal footprint pre-GFC. So if you go back and sort of look at what revenue growth was during that period of time, it was pretty healthy. So I think there are reasons to be optimistic from a supply standpoint, again, being cognizant of any other pressures in the system and what the consumer can continue to afford.

Maybe just one question on D.C. specifically. Obviously, with the government efficiency initiatives going on, I recognize that usually if someone leaves their job or loses their job, there's a delay before you actually see it on the rent side. But what are your dashboards showing there? And how are you preemptively thinking about either pricing or occupancy, just given the potential disruption in the market?

Yes. Good question. At this point, obviously, a little too early to tell in terms of the sort of crosswinds that are moving through the DMV with, on the one hand, from a positive standpoint, people being required to come back to their office in the District of Columbia, Northern Virginia, et cetera, certainly has a positive impact. In terms of the potential layoffs, obviously, negative repercussions there, depending on the extent to which they occur over what period of time, the lag, benefits that people receive in terms of being severed, et cetera. I think it's probably through a normal cycle, you would not expect a near-term impact that is meaningful because things do take time to play out, get severance, et cetera. But at this point in time, our dashboards are still green for the Mid-Atlantic. Started the year with one of the highest levels of embedded growth. Also, if you look at asking rents on a year-over-year basis, it's up 4.5% or so. That's at the high end of the portfolio. So just across the DMV at this point, we feel pretty good about what we're seeing. To the extent that there are material impacts, I suspect the earliest as we probably see that would be mid this year, maybe later this year in terms of actually financial decisions that people need to make to relocate to other locations. I'd say, if anything, what we've seen more recently is people moving back closer to their job markets. So call it, net neutral at this point based on the carryover from last year and that same momentum kind of being in place, at least at this moment.

I guess, historically, when you've seen, I guess, big layoffs in a certain market, more regional type of layoffs, it normally takes like 6 to 9 months to work through. Like that's when your dashboards would go from green to red?

Yes, you'd start to see more availability. But before that, you start to hear it on the ground in terms of customers coming into our leasing offices, asking for what their options are for lease terminations and various other things. We're not hearing about that yet.

Got it. Okay. And then maybe in terms of California, both markets, L.A. and Northern California. Can you maybe talk about those? I guess, L.A., of course, the question is, and I know you got it a little bit on the call, just if the unfortunate wildfires have changed anything there in terms of the demand dynamic? But maybe looking beyond that, obviously, it was a fluid market going into it just because you had this impact from evicted tenants that was creating more capacity, more vacancy in the market. So maybe just talk about your expectations there and whether the fires have changed anything. And then Northern California as well, it seems like one where people have grown more optimistic recently, talking about return to office and some other trends that have happened. So maybe just talk about those 2 markets and what you're seeing in real-time.

Sure. As it relates to the Greater Los Angeles market, what I'd say is that, I think, consistent with our peers, we've not seen a meaningful uptick in demand as a result of people that were displaced by the wildfires. As of, I think, a couple of weeks ago, on a net basis, we had generated like 70 leases or so from people who came in and provided evidence that they have been displaced by a fire. And we had some economic benefits associated with that for those residents. So has not been broad based. It's been pretty targeted, very specific assets for us in Santa Monica, Pasadena, Monrovia, et cetera. Looking forward, what we have heard from our teams on the ground is that most of the people that have been displaced, first, as you might imagine, they're looking for a single-family rental since their home was destroyed, preferably in a school district -- in their school district or something close by where they can petition and go back into the same schools, assuming they're open. And we're still hearing about a lot of people that are still working through very, very early stages of the insurance process. People are in hotels, et cetera. So it may play out that there is a second wave of demand that comes through. But at this point, it's a little early to tell. I think some of the insurance companies are still dealing with carryover losses from Florida and the hurricanes. We've had outreach from insurance companies looking for bulk leasing of 100 units here and there, but their teams aren't even on the ground yet. So I think it's going to take time for this to play through the system and determine what the impact is. As you noted, over the last couple of years, we have seen sort of recycled apartment homes come through from people that were carryover from COVID evictions. And so I think over the next year, we're expecting roughly 3% revenue growth from that market, but expect it to be a little choppy. And if we do have some net demand from the wildfires, certainly, that would tilt it to maybe a slightly positive direction. But pricing, we all need to be mindful of given the states of emergency that are effect there. Northern California, what I'd say maybe contrast to Northern Cal or Seattle. Last year, Seattle is quite healthy, return to office, Amazon, Microsoft, a lot of their suppliers, particularly the North end and the East side. And that market performed quite well, we expect it to perform well this year. Northern California certainly has been lagging behind Seattle. And we've had a couple of false starts over the last 12 to 18 months in terms of things looking green on our dashboards and then kind of fizzling out. Things looked pretty positive at the beginning of last year and then it kind of fizzled out. Beginning of this year, things looked pretty good. I'd say our teams feel very good about what they're seeing on the ground in San Jose, in particular. One of the sort of leading indicators for us is when everybody on our team is complaining about the traffic getting in and around San Jose, that seems to be back. So people coming back to Google, Meta, et cetera, I think there's pretty good momentum there. Hopefully, that sticks. The city is starting to see some momentum there. Asking rents in San Francisco were up about 4% year-over-year. We were in the same place at the beginning of last year and then things kind of fizzled out. But seems to be maybe sturdier momentum in that market at this point, but we need to see how it plays out. And then East Bay is lagging, which it typically does behind San Francisco and San Jose in recoveries.

Got it. And just maybe to put that in context, like where are asking rates across your portfolio? I mean as you said, it's up 4%, I think, in...

Yes. Portfolio average right now is around 3%.

It's around 3% year-over-year. Okay. And then we had a question. It's a little bit of -- I'm not saying it's strange, but it's maybe -- anyway, it says how does Elme Communities assets compare to AVB's? Any views, expectations around that strategic review? And maybe just to add on in case you can't opine on that, sort of what you're seeing in terms of cap rates, valuations in some of your core markets. I know you have some asset sales that you've teed up. So maybe what you're seeing there as well.

Eric, can you repeat the first part of the question?

The first part was really just around like Elme announced a strategic review they're going to be selling -- potentially selling a lot of assets. Are you going to look at those assets? How do they compare to your overall portfolio? And then I'm just adding on to it, just what you're seeing generally in some of your core markets in terms of cap rates, valuations. I know that you have some asset sales that you've been lining up. So presumably, you have a good understanding of where those might trade as well.

Yes. I won't comment on Elme up here going through their strategic process. In terms of the market, I would say things are still relatively muted. Obviously, we've been able to find a portfolio with BSR that was pretty targeted. But in terms of, I'll call it, day-to-day transaction activity, things aren't fully back. And the largest driver of that is just uncertainty in and around rates. The movement in rates recently should help some. But I think until we get to a point where rates stabilize and both buyers and sellers have a sense of where those rates are going to stabilize, I think we're going to still face a market that's fairly muted. Generally, market participants at this point, I think, probably back half of the year, hopefully, is when transaction market activity really starts to pick up. I commented before, generally on both the buying and selling side, we're seeing cap rates in and around the 5% range. Emphasis point that I'd make to investors in this group is we've generally been selling out of older, slower-growth, higher CapEx assets in our established regions and then redeploying that capital into the type of assets that I talked about in the expansion regions. And we've historically tried to target about 50 basis points of incremental IRR on what we're buying versus what we're selling. This last batch of deals we're actually able to find opportunities where that IRR is 150 basis points higher on what we're buying versus what we're selling. So the relative trade that we see today to continue to make that shift feels better than it has over the last couple of years.

Got it. So I mean, even with -- because a question came up, I think, earlier, I didn't get to it, but it was sort of asking if you're buying suburban product, let's say, at lower rental rates, CapEx as a percentage of NOI would presumably be sort of higher for some of those than maybe your overall portfolio. But maybe that's just completely wrong. But like how you think about buying those types of assets might influence your AFFO growth? At your Investor Day, I think it was 2 years ago, you gave pretty good outline of core FFO growth. So would you expect sort of better AFFO growth than what you outlined because you're going into lower CapEx? Maybe just help us understand the CapEx needs and how that might change as you're going through this transformation across your portfolio?

Yes. At a high level, as we head into these expansion markets, NOI margins are slightly lower. We're conscious of that. And then going to Sean's comments earlier, our approach has been to focus on simpler assets, partially from a CapEx perspective. And then also, these lower density suburban garden assets really lend themselves well to the neighborhooding that we're doing, the use of technology, the use of centralization. So when you think about driving incremental growth, this is a profile of assets that matches up very well with that operating model journey and a set of initiatives that we have.

All right. We have our rapid-fire questions to end the session. What will same-store NOI growth be for the apartment sector overall next year in 2026?

Mid-3% range.

And then will the apartment sector have more, fewer or the same number of public companies a year from now?

Same.

Great. Thank you very much.

Thanks, everybody.

Thank you.