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| And our development underway is nearly 100% match-funded essentially with yesterday's lower cost of capital, which in turn helps ensure that these projects provide earnings and NAV growth when they are completed and stabilized |
| In Chart 1, you can see that rental affordability in our established regions is actually better than pre-pandemic levels, given the strong wage growth that's been experienced over the last few years |
| So a much more affordable price point which we think has a much better growth profile |
| And we obviously got good visibility there on when they're going to be delivering |
| Our strong operating performance also speaks to our portfolio positioning, which is 70% suburban and primarily in suburban coastal markets, which continue to benefit from a combination of steady demand and limited new supply |
| We grew core FFO by 6.4% in Q3, which was $0.06 ahead of our expectations |
| This outperformance was primarily driven by better-than-expected revenue growth, which positions us well, as we enter the traditional slower leasing season |
| So on the developments we have underway we do have strong conviction that those are going to continue to create meaningful earnings and value |
| These projects are funded with yesterday's capital, at yesterday's capital cost and are slated to generate outsized value creation and earnings for investors |
| We continue to deliver strong operating results with tailwinds specific to our suburban coastal markets incremental NOI to come from our developments and lease-up and all supported by a fantastic balance sheet |
| Slide five provides the breakdown of our Q3 revenue outperformance relative to guidance from the end of July with a 30 basis point uplift from higher-than-expected occupancy, 20 basis points from higher rates and 10 basis points from improving bad debt |
| We've exceeded and raised guidance three times this year |
| In the near term, while volumes are modest, we're able to deploy capital at double-digit returns through our SIP program |
| And while in the current environment we're focused on maintaining our balance sheet strength, we do believe that we are well positioned given our low leverage, ample liquidity and unique strategic capabilities to capitalize on opportunities that might result from market dislocations |
| Utilities, which is about 12% of the expense structure the continued implementation of our AvalonConnect offering which is a profitable endeavor |
| As we've emphasized, we are 95% match funded on our development underway, which means all of that capital has already been raised at an attractive initial cost and allows us to deliver projects in 2024 and 2025 that will generate significant earnings and value |
| Starting on slide seven, we believe our portfolio is well positioned as it relates to rental affordability, particularly as compared to other regions of the country and single-family for sale product |
| We have consistently maintained a strong balance sheet throughout cycles |
| This bodes well for revenue growth in all market cycles, but is a particularly valuable attribute of our portfolio, if we experience a weaker economic environment during 2024 |
| And so as a result, we continue to enjoy tremendous financial strength and stability and the flexibility to pursue attractive growth opportunities that may emerge across our investment platforms in the coming months |
| As Matt will emphasize later, our lease-up communities continue to outperform our original expectations by a wide margin |
| For example, the September revenue from our Avalon Connect offering was about 40% greater than the average monthly revenue for the first nine months of the year and that monthly revenue run rate will continue to grow during the last two months of 2023 and throughout 2024 |
| We continue to enjoy tremendous financial strength and flexibility both from a balance sheet and a liquidity perspective |
| We're also fortunate that we're able to underwrite most of this business in today's more restrictive environment providing a strong risk-adjusted return particularly for the latest additions to the program |
| We're still early in the build up of this new line of business and expect it to continue to grow to roughly $400 million over the next few years, providing a nice tailwind to earnings growth as these dollars get invested and start earning a return |
| Taken together these building blocks should support healthy revenue growth during the upcoming year |
| Our lease-ups continue to deliver outstanding results, laying the foundation for strong future growth in both earnings and NAV |
| I want to start with my thanks to the AvalonBay team and our 3000-plus associates for delivering another strong quarter of financial performance and operating results |
| So given where we are it's a low leverage level, but we think it's appropriately, so because it gives us strength to deal with potential challenges that could happen ahead as well as strength to deal with potential opportunities that we hope will be in front of us |
| We're fortunate in that we have multiple levels to grow overtime |
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| So fundamentals have remained weak and they did get weaker as we moved through the quarter into October |
| For example, the volume of existing home sales in our established regions has declined by roughly 25% over the past year |
| And so in the SIP frequently almost always the sponsor will provide a projection of NOI that we think is overly optimistic |
| Second, our current loss to lease is roughly 2%, led by the East Coast at about 2.5%, while the West Coast and expansion regions trailed behind at approximately 1.5% and 70 basis points respectively |
| But we've been in a again for us if we track to roughly $800 million in starts this year or maybe a little bit under that that would be a pretty light year for us and certainly lighter than what we expected going into the year which was the same last year |
| And related to that, I believe it seems like a long time ago but November, December of 2022 was particularly weak and then it rebounded in -- early in 2023 |
| I'd say, what -- where it's coming from for the most part is a blend of Southeast Florida and what we've experienced a little bit, that's going to be coming online in the Texas market where it's a more challenging environment is in Charlotte, which as you may have noted the expansion region rent change is negative |
| We have seen some of that this year as reflected in what we've posted in terms of cost because there's yeah, just greater damage in the units |
| It's still a difficult market |
| And in our own portfolio, the percentage of move-outs to purchase a home has dipped below 10% this year well below the mid-teens long-term average |
| There's a number of macro factors that appear to be more headwinds |
| As it relates to Florida specifically, what I would tell you is where we've seen elevated bad debt, and frankly, it's been beyond our expectations |
| From a macro perspective in terms of providing commentary today, that's probably where it's been a time which is -- based on what we know today we would anticipate that from a demand standpoint things would decelerate as we move into 2024 just given what we've been seeing in terms of the expectation for slower job and wage growth and other potential headwinds as it relates to whether it's oil prices, obviously, interest costs, student loans, et cetera et cetera |
| Things did soften more so particularly as we got to sort of mid-September into October and that's what's reflected in the rent change, you saw as it continue to tick down through the quarter and then more meaningfully into October |
| And I think we are starting to see it in Northern California, where it's just been very, very soft for a while now |
| One is San Francisco just to pick on it since everyone seems to like to lately it's -- there's a number of different headwinds there as I think we're all well aware of probably not the best time of the year to be seeing some elevated demand there |
| In terms of pacing and timing, we are seeing softness |
| Combined with I'd say one or two places that continue to remain saw often even a little softer as we got to the end of the third quarter |
| As I mentioned in my prepared remarks, has been trending below 10% all year |
| In terms of today it's hard to provide an estimate other than as I mentioned we would expect a softer demand environment in 2024 as compared to 2023 based on the current sort of consensus outlook for macro variables |
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