U.S. Apartment REITs: Bringing Home The Bay-con

Research evidence excerpt

U.S. Apartment REITs: Bringing Home The Bay-con

Layoffs at Microsoft and Amazon have led to softer demand and a competitive

leasing environment. Both companies had thought that strength in tech hiring in

Northern CA would start to have a positive impact on Seattle, but thus far, the

employment outlook is less favorable than expected.

EQR's expansion markets are ahead of initial guidance expectations, while

AVB are behind. We think this is mainly due to EQR setting relatively more

conservative expectations for SSRev growth in its expansion markets at the start of

the year compared with AVB. For example, updated projections for both

companies forecast Denver SSRev of down -4% in 2026. For EQR, this is ~100 bps

ahead of initial expectations while AVB is ~50 bps below initial expectations.

Urban generally outperforming suburban. EQR's more urban portfolio

continued to deliver stronger SSRev growth. In NY, EQR posted growth of 3.8% vs.

AVB of 1.9%. Within the MSA, AVB's NYC SSRev was 3.4% vs. New Jersey of

0.3%. We attribute this in part to greater supply pressures in New Jersey. Northern

CA had a similar trend. Though, in Washington DC, the suburbs are still delivering

growth above the District. EQR's SSRev growth in Washington DC was 0.8%.

AVB's for the MSA was 0.7%, led by Suburban MD at 1.6%.

Where could there be upside to guidance?

We think there could be upside vs. SSRev forecasts via higher rents for some Coastal

markets and/or better than expected growth in non-rental revenues.

Asking-rent trends remain supportive in Boston and the expansion markets

according to recent CoStar data. We think this is demonstrated by EQR's rents

spreads continuing to accelerate through mid-July.

We think stabilization in employment in Seattle remains a key variable. Improving