Equity Residential (EQR) Earnings Call Transcript & Summary

Great. Well, good afternoon. Welcome to Bank of America's 2025 Global Real Estate Conference. I'm Jana Galan, and I cover the residential REITs at Bank of America. We're very pleased to have with us Equity Residential's President, Mark Parrell; EVP and CFO, Bret McLeod; and First VP, Investor Relations, Marty McKenna. I'll turn it over to Mark to give a few opening remarks, and then happy to take Q&A from the room or I have some questions prepared as well.

All right. Well, thanks, Jana. Thanks for including Equity Residential in this event. We appreciate that. I want to make sure everyone knows we have Bret McLeod, who is our new Chief Financial Officer, comes to us from hospitality and retail background. Really excited to have him on board. So just talking about operations year-to-date, then we'll talk a little bit about the shape of '26 and then hit on capital allocation real quick and then open it up to questions. So just in terms of how this year has gone so far, it's been a solid year for Equity Residential. When we did our earnings about 5 weeks ago, we raised our revenue guidance, our NOI guidance and our FFO guidance on the back of better than we expected and better than historical average renewal rates, retention rates, meaning the percentage of people that are renewing with us and occupancy levels. Those were all very strong. New lease rates were more modest than we expected. We had a leasing season that plateaued earlier, did not go as high as usual. So new lease through June 30 was about 10 basis points down. Last year, when we reported at the same time, it was 10 basis points up. So a comment I do want to make is there's a lot of emphasis on the street about new lease. It's not unimportant, but it's not the most important. It is a lever we pull in balancing and managing same-store revenue. In some markets, we're more occupancy focused and some were more new lease focused. So I just want to make sure people get that whole context, because the Street does seem to react to that number particularly. And we and I think our competitors manage to a same-store revenue cash in the bank number, not to a particular input. Looking to next year, we're really well positioned. We are a uniquely urban REIT. We have a higher level of urban exposure that was tough on us during the pandemic years of 2020 and '21, but it's going to be greatly to our advantage. So far year-to-date, our urban portfolio has outperformed suburban by 60 basis points. So we have a particularly high exposure here in Manhattan and Brooklyn as well as Downtown Seattle and Downtown San Francisco. And San Francisco and the Peninsula are doing particularly well right now, and we can talk about that in a minute. So those 3 markets combined are 45% of our company and that puts us in a good position next year to outperform, we think, the peer group. Looking towards supply, we expect a lot less supply and a lot is discussed about less supply in Sunbelt markets, and we certainly see that, and we have a few of those in our portfolio. But markets like San Francisco, by our count, are going to have only a bit more than 1,000 competitive units delivered next year in a metro of that size in a place like Los Angeles, more like 4,000 or 5,000. Those are really low numbers, and they bode well, especially we're occupied right now, 96.5%. So you think about that setup going into a quieter time of year. Rents will decline in the rest of the year, but the setup going into next year, less supply. We're in advantaged markets that are seeing more growth and they're seeing more growth for a couple of reasons. First, absolute rents compared to incomes in Seattle and San Francisco are low. So nominal incomes went up 25% to 30% since the beginning since 2019, call it the beginning of the pandemic but our rents are just going above 2019 levels in San Francisco and Seattle as a whole. So there's room to run on rents. I'd also say that there's a bit of a decoupling effect. So a lot of folks that live in the Midwest and East have already forgotten about return to office because you're already back in the office. But I tell you that is an ongoing thing in the West Coast. When Bret and I were out there a month ago, San Francisco, just called all its municipal employees back to the office full time. Yesterday, Microsoft announced that they were going to bring everyone back 3 days a week as of January 1 for their Seattle-based workforce, those are powerful demand drivers for us. We told you on the earnings call, we already saw in San Francisco, people moving in. We see everyone's address when they leave and when they're coming to us. And we see those addresses people moving from Sacramento and further out locations back into suburban locations where we have properties and into the downtowns. We also see in San Francisco, the beginning of something we're very excited about. When that market, which is a volatile market cycles up, we typically see a fair bit of inbound traffic from outside the state so think about MBAs from Wharton, think about Purdue University computer science graduates. We see those people coming to San Francisco, again, following the AI boom, following all that technology and we just have a bigger presence on the Peninsula and in Central San Francisco, downtown San Francisco than our competitors. And like I said, that was tough in '20 and '21, but it's feeling really, really good right now. Rents right now are up 8% year-over-year in San Francisco. They have not started to go down yet. We just have terrific demand in that market. And again, being out in Seattle, I can tell you, the indications feel good. That is a higher supplied market so next year will be even better. So again, we feel very well positioned going into what we think will be an above-trend year. So we talked at our Investor Day about the company's positioning and our ability to recover some of the lost revenue that sort of went through the COVID period and went away, and we see that coming together for us. That is definitely manifesting itself. And like I said, we'll come together, I think, in a good way next year. So a quick note on capital allocation, and I'll throw it back to Jana. So going into this conference, just looking at the stock price, management and the Board are keenly aware of it. It's certainly something we're very focused on. It makes it very difficult to have acquisitions pencil when you have 4.75% prevailing cap rates and the quality of assets we want to buy. If you look at the stock trading well above a 6% implied cap rate, and that seems like a better value to us. So we are aware of the signal the market sending. I think acquisitions are a tough thing to allocate capital to. I do note you may see us, you will see us close a couple of deals this quarter. Those are deals that were already in process and under contract. But new capital allocation and acquisitions is challenging right now. I think development has a pretty high hurdle, too. I do think it will be interesting to deliver some product 2 years from now and there's a lot less being delivered, but we'll be very selective there as well. So I'll stop there, Jana and kick it back to you.

Great. Maybe just following up on that comment on the -- where the implied cap rate is and acquisitions and development not really looking that attractive. I guess kind of what is the share buyback program currently in place and...

Sure, details. So the buyback authorized by the Board is 13 million shares. That's been publicly announced. We aren't -- that's the legal authorization of that program. I said on the call that it would be our intention to the extent we decide to do that, to fund it with dispositions. So the ability to sell some of our lesser attractive assets at numbers. So our better assets trade well into the 4s, but we certainly have assets in the mid-5s that are older. We don't believe in a renovation story where we're overexposed. Those are great candidates to sell and a turnaround and buy the stock. So I would expect the limiter to be more about tax gain scaling things of that nature, Jana. I wouldn't expect to fund it with long-term debt. I think that's a different risk play at this point, but we do have that capability. We're pretty underlevered.

And then maybe jumping back to at kind of just operations. And I think you laid out kind of a really strong trajectory and vision of demand at your Investor Day for kind of the next 3 years and also kind of the markets that you are and there's greater visibility on supply, longer permitting, longer construction time lines. But I guess what kind of surprised everyone was the revised job reports that we got a couple of weeks ago. Just wondering how you're kind of thinking about that news and then kind of matching it with what you heard from the team in the field during the kind of spring and summer leasing season.

Yes, that's a great observation. So you saw the apartment companies start to report. The first quarter was more or less on track in terms of new rents and less -- we just have a lot less activity in the first couple of months of the year. Then you started to hear from us and our peers that it was weaker. And that seems to have corresponded almost exactly with the job slowdown. We didn't know it at the time, but they do sort of explain each other. And my theory on why our growth -- intra-period growth was less is certainly the jobs. But I'd also say, I think there's a lot of uncertainty and indecision in the minds of both landlords and in the minds of residents. So if you're a landlord in our position and you're in D.C. and you're hearing and reading all those headlines, you may feel really good because your occupancy for us in D.C. was over 97% for a long period of time. But it's hard to move rents and not feel uncomfortable at times because what happens is you move rent a little, you lose a little occupancy, you test that, then you move -- it's a hunt and peck method. It's not a smooth increase. So you end up in a situation where you don't know if you hit an inflection point. And if you're nervous, you might slow down your rent increases. And in markets like D.C., that's exactly what happened. I think we probably could have increased rents more than we did. And I think we felt that anxiety. I think our residents are getting good service from us. I think they like their properties. I also think they're a little uncertain about their job prospects. They haven't lost their job, but they wonder. The world is an uncertain place. They aren't interested in buying a home for sure. And you know what EQR gave me a 4% rent increase. I like living here. I'm not going to go to the trouble of moving. And I think those 2 combined to give us really good renewal rates and retention rates and really good physical occupancy, but relatively weak new lease rates.

And I guess, any -- I mean, outside of the expansion markets, any markets where you kind of built that more, I guess, you're calling out D.C. as an example.

So D.C. only recently felt weaker to us. So we do feel that in both Northern Virginia and the D.C. proper right now. Our portfolio in Maryland is not that large. So I don't have an opinion on Maryland suburbs. Boston, we saw all like the health and university-related news. That impact was not significant. That market has continued to perform well. We're mostly urban. The urban is outperforming suburban because there's just relatively little supply in the urban center of New York. So we feel good about Boston. . I think the market that would have disappointed us, Jana, just as much as San Francisco surprised us to the upside is L.A. to the downside. So L.A., for us is a challenged market. Job growth was hurt by just all the strikes in the entertainment industry. A lot of that work moved. We're hopeful that the new tax credit program brings a lot of that back. We're already seeing an increase. There's 4x as many film permits pulled in July of this year as July of '24. So that's promising. There will be a lot less supply, particularly in the areas we have concentrations in L.A. So that's Koreatown and downtown. So we love the supply picture in L.A. Quality of life needs to keep improving. I'm hopeful that the focus on the Olympics in 2.5 years or 3 years still, I guess, and next year's World Cup focuses city leaders on that. Quality of life has improved immensely in Seattle and San Francisco. And we just haven't seen that follow through in L.A. and that would be great. So my guess is L.A. will be better than this year. Next year will be better in L.A. than this year because I'm certain supply will be lower. I feel like the job stuff will get a little better. I'm hopeful on quality of life. But I bet you it will be more like an average market, Jana, not an outperformance market.

And clearly, you've had a lot of success on renewals. You offer a very high quality level of service, high-quality product. I guess, are you kind of surprised at that ability to continue pushing on those? And kind of just curious. Obviously, at later points in the year, there is more kind of like a gain to lease, but do you -- is there a point where you feel that, that may be too outsized?

What's to it? The renewals?

The renewal -- the market or the in-place rents are much higher than market rates.

Well, this is going to give me a chance to have one quick comment on new lease and how it's computed. So new lease is a one-to-one thing, as Jana knows. So I move out and you move in and my lease rate, I've lived there 5 years, and you've gotten pretty good renewal increases from EQR. And if it's a weak market, you may be significantly above market. So when the new person moves in to take my spot, that new lease number is going to be very negative. That may be true even if the rent is 5% higher than it was last year, but just because I've had so many rent increases as a person who stayed a long time. We gave you great service, you were happy in our unit. You didn't want to move. We didn't want you to move. We worked with you and you ended up where you were. And then after you have a point in your life where you're changing jobs or you're buying a house or something else is going on. You also could have the opposite where rents have been going down in the market. We pushed someone to -- now it's time for a renewal increase. We haven't done it as much in the market. And all of a sudden, they move out and we get a big increase. So new lease rate just to take your question, is like the use -- the least useful number because it really requires you to know both the person moving out and the person moving in and their tenure and where their rents stand compared to market. So right now, we are in a loss to lease position, Jana, to answer your question, which is pretty common, meaning that our rents, if we could reprice the whole rent role would be higher than what they are right now. I expect, as is usual, by the end of the year, we'll be in the gain-to-lease position. We expect next year, we'll have embedded growth, which is, again, the ability for us to just kind of go through the year without changing occupancy or rate, sort of our starting point to be about 100 basis points or 1% going into next year. We would have expected it to be de minimisly higher, but it's probably going to be about 1%. And then on top of that, you'll add intra-period growth, maybe a little benefit in occupancy or delinquency management, other income. And then I'll tell you the good supply picture. And that's why you hear your management team so optimistic about 2026.

That's super helpful. And I guess, occupancy kind of at 96.5%, do you think that there's room to take that [indiscernible] a couple of basis...

It's just 96.4% right now. So again, now. Yes, I think it's plus or minus 10 basis points. I don't think it's going to be a lot. I think some markets like Dallas, where you may get more absorption, there's more opportunity, but we have a much smaller portfolio there.

And maybe same on kind of like the bad debt, it's come down? you think it could come down.

I think it could come down another again, plus or minus 10 to 20 basis points over the next year or so. We're making good progress right now. I think other income is a definitive positive. So you see us year-over-year, quarter-over-quarter, I should say. Third quarter and fourth quarter will be better than the first quarter and second quarter were. That's partly because we've written a lot of good leases, and we get that rental income, also because delinquency is getting better and also because our other income initiatives are hitting. So those are parking. Those are some other income matters that we're working through like Wi-Fi. So those things, Jana, are helpful to the tune of 60 to 80 basis points this year, and they'll provide some lift next year as well.

Great. Then maybe if we could kind of turn to San Francisco, it seems to be kind of the strongest market in the country right now. If you could kind of share what you're seeing there because last year, it had a lot of kind of starts and stops.

It feels like it started. So we were there. Bret and I were there the first or second weekend -- second week, pardon me, of August, spent a couple of days there, walked around and visited our properties, great occupancy, great rent growth. Again, we're seeing people move back in from further out suburbs in Sacramento and the like. We're also seeing people move from other places. Quality of life is much better. We had some high-level government meetings. The first question to ask is how can we get you to bring more jobs here? How can we get you to build more housing units, a very welcoming attitude towards business, and that's an incredible change of pace for San Francisco, a ton more activity on the street, a lot more activation. The people we saw and talk to had 3-day a week work weeks. They were moving up the RTO scale. So to me, all arrows point up in San Francisco, very, very little supply, quality of life improving, good demand for us on the Peninsula and in the city from the AI boom. And I think elsewhere, we just feel like the tech ecosystem still has a lot of jobs in it. We have properties very near Apple, and we were renovating some units and they're very nice renovations. And boy, they just sell out so quick. There's just a really housing starved market and have a big presence there like we do is to our advantage.

[Technical Difficulty] in the next 3 months.

Right. So the question was what happens to our delinquency forecast and numbers, if maybe the job market deteriorates further in the next few months, right? Yes. So more important than that would be government policy. So local government policy matters a lot more. We are -- we have some pretty powerful tools in our underwriting toolkit to understand both fraud as well as people's earning power. So for us, it's not that the number of delinquents is high. It's not. It's the cost of each delinquency. So if you think about L.A., maybe it took 2 to 3 months if someone wasn't willing to pay for them to have to leave and now that cost could be 6 months. So each mistake we make in underwriting or each change in a person circumstances is a lot more expensive. During COVID, it was even more so. So if you add eviction moratoriums and things like that put into place. And again, L.A. County thought about it. And they're a tough place to do business post the fires. And there was just such a groundswell that it's so clear that's a bad idea. I mean, why would you do that across instead of a need-based relief program from the government, it makes no sense at all. So I feel more optimistic that people realize those kind of moratoriums are bad public policy tools, but that will be more than job changes. We have such a high-end clientele. They pay about 20% of their income in rent that a blip here or there is not going to matter on that side. I think our population is more insulated from that. But I think if government policy changes and 3 months goes to 6 or 6 goes to 12, that would be more of the dilemma.

Maybe talking a little bit about some of your newer markets. I think you were kind of favorable on maybe Atlanta leading a little bit of the Sunbelt recovery. And in your comments, you mentioned maybe if Dallas gets a little bit stronger absorption, it could -- so these are kind of the 2 that you think could lead us.

Sure. So we said on the earnings call, our Chief Operating Officer, mentioned that we do see the light at the end of the tunnel in Atlanta. And what that means is our operators on the ground feel less pressure from concessions and just less challenges keeping the buildings filled, and we start to -- it's sort of a process where you build a little bit of occupancy, then you start to reduce concessions, then you start to raise face rents. It's a process. It doesn't happen all at once. And we're at the beginning of that process in Atlanta, and it feels really good. Dallas is -- I think the team really would characterize it as hand-to-hand combat. There's a lot of demand, but there's all a lot of units there. It will drop a lot next year. But right now, I would say it's still a very supplied market. Denver has both supply and to some extent, demand challenges. We feel good about it long term, but it is a challenged market. Our presence in Austin is 3 buildings. It's too small to really speak to anything definitively. But we like the long-term supply-demand dynamics in those markets. Our opinion has just been maybe contrary to others, it would take longer to manifest itself in better rent rolls and better same-store revenue growth, and I think we were right about that. A lot of people said it was a '25 story, clearly not a '25 story, and we said that a year ago. So I think next year, the second derivative will turn up in a lot of those markets, but same-store revenue is more of a '27 story than the '26. And like I said, we own those markets, we like a lot about them. But when you lease up a building and you give people 1- to 2-month concessions, the first anniversary when people come up and you say, hey, no more concessions. That's not been our experience. They say that's great. Experience that we've had is they say, I'm going to move across the street because I get 1 month free still there. So our experience is it just takes a while to ring that out. It doesn't mean it doesn't happen. And like I said, we're investors in Dallas and like it. It's just the time line in which it occurs is slower than I think people talk about deliveries being the point of a turning point in a market. It's not deliveries. It's sort of 1 year, 1.5 years after peak deliveries.

You just mentioned that same-store revenue growth was a '27 event. Was that specific to the markets you were just talking about? Or is that fully...

No, that's specific to the markets I'm talking about, right? And for us, that's specifically Dallas, Atlanta and Denver, where we have a presence and keep building. So I want to note on our -- because we've been buyers in those markets. So our underwriting has been on track. We expected revenues to go down in those markets. We underwrote it to do that and they're doing that. So it's a combination of concessions and just lower face rents in those markets. We thought we'd run it with less vacancy. We thought we'd run it with less delinquency, and that's true too. We're good at that -- we're really good expense managers so the people we bought from of all ilks one-off and portfolio whatever, all good owners and stuff, but we're particularly good operators. And so we feel like year-over-year, there won't be a big increase, but there also is going to be a big decline in NOI because we're, like I said, particularly adept at expense management. And one example I want to give is the deal that we did earlier this year, the 8-Property in Atlanta. So we stayed at a cap rate there of 5.1%. 5.1% cap rate for us is the standard cap rate that includes a property management charge. So that's everybody off-site. Computer engineers, HR professionals, legal, all that, some charge for the fact that you need those services. It doesn't include G&A, people like me that are purely top of the house overhead. So in any event that number in our underwriting was $1.5 million, yet we only added $500,000 of overhead because we're already scaled in that market. So when you start to get scale like we are, it's really, really powerful. And that's when I talk about like the advantage we have buying from less organized private operators. It's our scale advantage and just because we're professional managers. We are an integrated property management and investment company.

Maybe following up on that, just comments on the overall transaction market. You kind of took down expectations a little for this year. Curious what Bob is working on that.

Well, the Bob we're referring to is our former Chief Financial Officer. I'm sure misses this event greatly and now our Chief Investment Officer. Well, what we're seeing is in the markets that we're interested in, so Dallas, Atlanta, Denver, the suburbs of Seattle, D.C. and Boston, just wasn't a lot offered for sale. This wasn't as much as we thought. I'd also say the stock price was a signal. So in light of all that, we took our acquisitions down from $1.5 billion of acquisitions and $1 billion of dispositions, which meant that we were incrementally financing $1 billion. We sort of looked at it and that just didn't make sense. So we lowered our guidance to $1 billion and $1 billion and just said, listen, we'll sell some of the lower echelon performers in the portfolio, and we'll buy as we can see out there opportunistically. I'm not even sure if we'll get to the $1 billion, we were sort of, I think, at $600 million. So we may not end up getting to that number because we're going to react to the capital cost signals we're getting.

And then maybe just kind of on cap rates. I think they've kind of been around that 5% range, whether it was coastal or Sunbelt. Is that kind of still the case? Or are people kind of getting fed up with negative leverage or getting excited about potential rate cuts?

Yes. Really good question. So we continue to see cap rates in the 4.75% to 5% range for the kind of product we want to buy, which is BB+, A-, A quality assets in the markets I just mentioned. There's been no real change in that. We've seen some deals in Austin where we're not buyers right now trade closer to 4.5% because people have such a high expectation of that recovery, but yet there's still a ton of supply. So what we also understand there to be doing is a lot of the buyers that are private buyers are buying using GSE floating rate debt. So SOFR plus a spread. Right now, that number isn't lower than fixed rate financing, but everybody is playing the curve and hoping that Fed will cut big then they won't have negative leverage anymore. I find that an interesting play and not one that we would take. So I think that's a little bit of it to Jana. It's a little bit of hope on, as you said, on rates and on the recovery in these markets, which I think is coming just probably a little slower.

And I guess on the other side, is that helping you a little bit with dispositions coming in better than you guys were expecting?

So dispositions are a split world. If the asset is much above $100 million, it's harder to sell. The market for pricier assets is harder to sell for cheaper, cheaper, meaning [ 125, 100] those sell. Sold asset in D.C. really full bidding tent, asset in the RBC corridor, cleared very well, just an area we were overexposed. So cap rates for the kind of assets we sell continue to be in the low 5s because we're selling less productive assets and we're buying what we think are hopefully higher IRR assets and more productive assets.

Yes, similar on the Boston -- suburban Boston assets.

Yes. Boston is -- there's not a lot for sale in Boston. So it can be hard to buy in that market. That's why we're building 2 deals in suburban Boston. It's one of those places we're having a development pipeline is helpful. So we got a deal in Kirkland, Seattle area, Metro Seattle and 2 deals, one north, one south in Boston because those are areas we find it hard to purchase exposure. So we've been building it.

[Technical Difficulty] slower job markets, college graduates.

Yes. So the question is, have we seen any impact on our portfolio from maybe slower employment of college graduates. So there's 2 different things that could be going on, and I'm not sure which of the 2 it is or maybe it's something else altogether. When you have a downturn in employment and you have a downturn in the economy, the first thing you do is in layoffs. The first thing you do is stop hiring people and the people you stop hiring are your entry-level people. So whether it is all the companies collectively as a group, hiring college graduates less right now because they just are hiring less entry level or whether there's an impact from AI on some of those industries is not clear to me. The conversations I have with people about AI seem to be everyone is very excited about it. And some of the easier use cases are being explored, but the ability to use it at scale in a lot of medium-sized businesses like equity, residential and others are more a year or 2 from now because you just have to figure out how to deploy it. So I'm not sure whether it's the general slowdown in the economy, but we're 96.5% occupied. We continue to move renewal rates. I mean the business is healthy. And I don't think the job market has to be great for us to have a good 2026. I just think it has to be not negative.

Maybe if you could just remind us kind of average age since you're not really getting that entry.

Yes. So our average resident makes about $160,000 and is about 34 years old. So there are certainly entry-level people in that cohort, but that isn't the majority of our residents.

Does the 4.75% cap rate for assets that you would buy in your overall cost of capital improved. Does that reflect on the margin, a higher quality of your average in [indiscernible] portfolio or marginally improving?

So just to repeat the question back, is buying a 4.75%...

Does 4.75% represent quality of...

So because what we're -- okay, the question is whether buying 4.75% to 5% cap rate assets improve the quality of our portfolio going forward or not? First off, really big ship, $33 billion, $35 billion. So buying $100 million is not going to make a difference. It's going to help because they are generally lower CapEx assets because they're newer, so they're going to have an AFFO benefit. They're going to have less capital spending. A lot of stuff we're selling. We always quote to you what amounts to a nominal cap rate because that's the market convention with a standard $150, $200 CapEx. A lot of stuff we're selling is a really serious CapEx load that we don't believe in. And the next guy is going to do a big rental and we don't believe in the return. So I'd tell you, I think you're going to improve the quality of the portfolio, but it's a little bit at the margin.

I'm just curious, anything that you guys are tracking or anything new on the regulatory front, whether it's at the federal level with this potential affordable housing emergency or maybe some of your markets at the local level?

Sure. So we'll just talk quickly about the federal government. So the housing emergency, I don't know what that means exactly because I don't know what specifically would be done. But local zoning decisions are the most impactful thing on housing supply, local regulation like the eviction moratorium we alluded to, those are much more impactful to our business than anything the federal government does with the possible exception, I would say, of the GSEs and the potential privatization of the GSEs, which is also hard, pardon me, to comment on because I'm just not sure what that is. Like I haven't seen a proposal so I don't know what it would do to funding for apartment loans. So I don't know how to react to that on the federal side. I think more supply would be great. A lot of federal land that might be loosened up here, Jana, isn't anywhere near where people want to live. So that -- I'm not sure that's helpful. I've heard that maybe LIHTC or Opportunity Zone grants would be conditioned on local government having certain rules or not having certain rules. I guess that could be good. I'm just not sure, again, how that would work and why that would be terribly impactful because those are smaller programs anyway. In terms of local government, again, you see a lot of governors like Governor Newsom moving supply-focused solutions forward, and we really like that. The Senate Bill he's pushing along would take away local control of zoning by transit stops and places that have the ability to take a lot more residents. You could have 3-, 4-, 5-story buildings built that's a terrific idea in a state that starved for housing and he's pushing that along and it's a really good idea. We have a mayoral campaign here in New York going on. We don't have a lot of exposure to the rent-stabilized units that a mayor would control if Mamdani won or more market rate here in the city. I would say the bigger impact would be on quality of life and things like that potentially than anything else. But again, we feel great about the vibrancy of New York City. It's been a terrific market for us. We're 97.7% occupied. So again, it's a strong market at the moment. And our hope is that Mr. Mamdani's focus is on housing supply all New Yorkers and the private sector can be part of that solution. We produce those units and I think having us as an ally is better than as an enemy, and we'll continue to make that argument through our trade association.

I think we have time for one more question. Otherwise, I can jump into rapidfire.

Rapidfire.

Okay. So these are questions we're asking all the REITs presenting at the conference. When the Fed starts to cut, do you expect rates for long-term debt to decline, stay flat or rise?

Decline.

Last year, the majority of companies stated they're ramping up spending on AI initiatives. How would you characterize your plans over the next year? Spend more, same or less.

More.

And then do you believe same-store NOI for your sector will be higher, lower or the same next year?

I'd like to not answer that question just because it gives such a read into the guidance numbers for our company.

I'll say the same.

Yes. Yes.

Thank you very much to Equity Residential.

Thank you, Jana. Thank you all.