Q1 2021 UDR Inc Earnings Call
Greetings and welcome to UDR as first quarter 2021 earnings call. At this time, all participants are in a listen only mode.
And the answer session.
Will be will be taken after the presentation.
If you need operator assistance during the conference. Please press Star Zero on your telephone keypad as a reminder of this conference call is being recorded it is now my pleasure to introduce your host director of Investor Relations Trent Trujillo. Thank you. Mr. True you you may begin.
Welcome to Udr's quarterly financial results Conference call, our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website IR Dot UDR dot com in the supplement we have reconciled all non-GAAP financial measures for the most directly.
Comparable GAAP measure in accordance with Reg G requirements state.
Statements made during the call, which are not historical may constitute forward looking statements. Although we believe the expectations reflected in any forward looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met.
A discussion of risks and risk factors are detailed on our press release and included in our filings with the SEC, we do not undertake a duty to update any forward looking statements. When we get to the question and answer portion. We ask that you be respectful of everyone's time and limit your questions to one plus a follow up management will be available after.
For the call for your questions that did not get answered during the Q&A session today.
I'll now turn over the call to UDR as chairman and CEO Tom Toomey.
Thank you Trent and welcome to Udr's first quarter 2021 conference call on.
On the call with me today are Mike Lacy, Senior Vice President of operations, and Joe Fisher, Chief Financial Officer, who will discuss our results.
Senior officers, Harry Alcock, Matt Coss add and Chris Van Ens will also be available during the Q&A portion of the call.
To begin the first quarter results met our guidance expectations.
And we anticipate same store growth and F. F O a per share will improve from here as evidenced by our guidance increase and the demand trends, which we will speak to during the balance of our prepared remarks.
We are often asked the reason for optimism on the recovery of the multi.
Family sector, and the magnitude of the potential upside UDR can capture.
Our responses to fall for.
First on the macro front, we expect to see the typical demand and growth cycle witnessed in the past recoveries.
The U S economy appears prime to accelerate as additional fiscal stimulus kicks in.
Explanation rates continue to improve and the return to office plans crystallize.
Business conditions across most of our markets returning to more normalized levels.
These factors should have a positive impact on job growth.
And wage growth, which drives demand for multifamily housing it.
It is difficult to put a range on the potential economic benefit from this unfolding, but recent operating trends put us in great position to realize this upside as we enter peak leasing season.
Second.
This recovery will have an additional tailwind that no past recovery has had.
The potential relaxation of regulatory restrictions.
These COVID-19 related regulations cost UDR, an estimated $8 million to $10 million.
Of the NOI during the first quarter alone.
We will further detail of this opportunity in his remarks.
But we are optimistic in our ability to recapture the income.
Income as restrictions sunset and the recovery ensues.
Collectively our macro views of.
The acceptance of our next generation operating platform by our residents and our ongoing ability to accretively source and deploy capital drove the full year 2021 guidance increases provided in our release.
Joe will discuss this further in his remarks.
Let me take a step back.
And look at our business over the intermediate time Horizons of 2019, 2020, one and into the future.
I firmly believe we have the correct strategy in place to outperform.
This proved true in 2019, when we Accretively acquired nearly 2 billion of properties with attractively priced capital.
In 2020.
Amid the pandemic, we made tremendous strides implementing our next generation operating platform.
Which represents an entirely new way of conducting business in the multifamily industry that has and should continue to drive more dollars to the bottom line.
Yeah.
For 2021, we believe we are well positioned to take advantage of the accelerating economic recovery and eventual relaxation of regulatory restrictions in many of our larger markets.
All in UDR has generated better than average <unk> per share growth in seven of the last nine years of track record I'm immensely proud of.
In closing I'm really remain highly confident in the strategic direction of our company and our team's ability to execute on an opportunity set that's in front of us.
The ongoing commitment of our team has delivered increasingly higher levels of service and satisfaction to our residents as we progress towards the full rollout of our platform.
While also making more efficient for this a heartfelt. Thank you goes out to all our associates for skillfully adapting to a new way of conducting business and executing our strategy.
With that I'll turn the call over to Mike.
Thanks, John a little over 60 days ago. When we provided initial 2021 guidance, we believe the reopening cadence of markets and therefore, the pace of recovery and multifamily demand indicators that we track would be largely tied to how rapidly vaccinations proceeded and how quickly regulatory restrictions.
Were subsequently relaxed.
Our best guess was that meaningful positive inflection would most likely occur in the second quarter for our portfolio of Tony and.
In the second or third quarters for assorted markets more negatively impacted by COVID-19.
While the regulatory backdrop has yet to exhibit material improvement I'm pleased to say that we are seeing core operating trends improving a bit earlier than expected.
This quarter, we added a new page store some of the illustrates these key operating trends, let me take you through our first quarter results and positioning ahead of peak leasing season, using the the charts on page two of the herself.
First quarter results were solid as evidenced by occupancy continuing to tick higher blended effect of lease rate growth turning positive in revenue growth improving sequentially. These.
These trends have continued into April and give us confidence that results can further improve as we re price 60% of our portfolio in the second and third quarters.
In terms of demand traffic was 35% higher year over year during the first quarter positively witnessed residents migrate back the harder hit urban areas in greater numbers of residents, leaving these markets declined. This has resulted in physical occupancy of 96, 8% in April are highest.
Reading since April 2020.
Higher occupancy is usually a precursor to future pricing power and our effective blended lease rate growth has improved following occupancy gains strategically.
Strategically we continue to improve Occupancies and are harder hit markets, but are also actively driving rents across numerous markets and communities the held up better during the pandemic.
Regarding blended lease rate growth the transition from vacancy the occupancy in some harder hit urban areas of coastal markets as head of near term hindering effect on our blended rate growth. However, I expect our blended growth to trend higher during the second and third quarters as market rents across our portfolio continue to rise.
As of today, we have a weighted average loss to lease of 2% a significant improvement versus October 2020 on our gained the lease topped out at 6%.
We have priced our may and June renewals at 102 of 150 basis point average premium to the two 7% growth we achieved in the first quarter.
And we are forecasting effect of new lease rate growth to turn positive portfolio wide during the summer as markets reopen and returned to office hits full swing.
A material positive development, we saw during the first quarter and in April thus far is the continued downward trend in concessions.
As a reminder, our strategy through the pandemic has been to maintain gross rents offer concessions to not diminish our future rent roll in anticipation of a rebound.
As demand has improved across our markets. So as pricing power and we have been able to reduce the amount of concessions granted on the leases from a peak of three and a half to for weeks on average in November 2020 to $2 seven weeks today.
Each week of concession of equates to approximately 2% effective rate growth and we should see this benefit more clearly in our results as we reprice a large portion of our portfolio over the next two quarters.
These factors have contributed to higher sequential build revenue, which we anticipate will improve further in the coming months importantly, cash collection rates rose by 50 basis points between February and March with further improvement in April as we benefited from reopening of job growth stimulus programs in two points.
I haven't seen in rental assistance received from a variety of programs.
We expect these trends to support revenue collection rates in the high 90% range going forward.
Taken together, our same store cash revenue growth turned positive on a sequential basis based on the most recent trends I expect our year over year same store revenue growth to be less negative in the second quarter and turned positive in the third quarter.
In addition to these core trends our future same store and earnings growth prospects are bolstered by the potential to recover lost income opportunities directly tied to the pandemic.
As Tom mentioned in his remarks, we estimate reduced collection levels and regulatory restrictions accounted for approximately eight to 10 million of lower NOI during the first quarter or <unk> <unk> per share.
Breaking this out further despite recent sequential improvement over the.
On the rent collections have trended around 2% lower versus pre COVID-19.
Salting and $6 million to $7 million quarterly run rate bad debt reserves and write offs on another one five to 2 million can be attributed to the other regulatory restrictions that have limited our ability to monetize our real estate through initiatives such as short term rentals amenity rentals and late fees.
The balance of loss potential income comes from mandated flat renewal pricing across 15% to 20% of our portfolio as.
As markets continue to reopen and regulations are eased we anticipate recapturing these revenue streams over time.
All of these big picture trends demonstrate our strong execution and the opportunity ahead. It's always helpful to provide some color at the market level briefly New York and San Francisco are collectively 14% of our same store NOI.
During the quarter, we observed higher levels of demand from favorable migration patterns into and out of these markets. This dynamic and its positive impact on market rents and concessions helped to drive occupancy higher and therefore sequential revenue and NOI growth.
Washington D C and Seattle are collectively 24% of our same store NOI on these markets experienced relatively high levels of competitive new supply during the first quarter, which resulted in the near term reduction of power pricing power.
We anticipate sequential NOI growth improving in these two markets is concessions decrease over the coming quarters.
Our sunbelt markets are collectively 25% of same store NOI. These markets continued to exhibit strength of the occupancy above 97% and we are actively increasing rents to maximize our rent roll.
Moving on our next generation operating platform version one point now has now been fully rolled out to 16 of our 21 markets. Our residents have embraced our move to a self service model as evidenced by 96, 5% of our tours conducted during the first quarter being self guided our touchless.
On the widespread introduction of automated self touring and easy to use revenue interfaces across our communities. We remain on target to achieve head count reductions, averaging 35% of our communities by year end 2021, primarily through natural attrition.
When coupled with other platform initiatives that also mitigate controllable operating expense growth, we remain confident in our forecast of the platform to increase our annual run rate NOI by $15 million to $20 million by the end of 2022.
Finally, I want to thank my colleagues in the field and at corporate for their continued hard work to make the platform of reality.
UDR associates should take pride that we have created a new way of doing business in the multifamily industry that improves the resident satisfaction increases engagement and career mobility for top talent and deliver strong bottom line results.
Although we have been working on the platform for three years. We are just scratching the surface of what is possible and now I'd like to turn the call over to Joe.
Thank you Mike the topics I will cover today include our first quarter results and our improved outlook for the full year 2021.
A summary of recent transactions and capital markets activity.
And the balance sheet and liquidity update.
Our first quarter <unk> as adjusted per share of 47 cents at the midpoint of our previously provided guidance range and was supported by same store revenue and NOI growth in line with our internal expectations.
For the second quarter, our epic the way per share guidance range is 47% of 49 cents.
The one penny per share of sequential increase was driven by our expectation for improving sequential same store NOI growth and accretion from recent capital allocation activities.
Our year to date results when combined with our expectation for continued sequential improvement throughout the year.
Drove the increases in our full year 2021.
The way and the same store guidance ranges provided with our release.
We now anticipate full year of her for weight per share of $1 91 to $2 with the midpoint, representing an approximate 1% of inquiries from prior guidance.
This increase was driven by.
Half of Penny from a 25 basis point, the midpoint improvement in same store revenue growth.
Half of Penny from a 50 basis point, the mid point of improvement in the same store expense growth and.
And a one penny of accretion from accretive financing activity and transactional activity offset by half of Penny from increased G&A expense.
For the same store guidance, we are now forecasting full year 2021 revenue growth of negative 2.0% to positive <unk>, 5% with concessions on a cash basis.
And negative for 0.0% of negative one 5% with concessions on a straight line basis.
This difference is due primarily to the residual impact of concessions amortizing during 2021 that were granted in 2020.
Additional guidance details, including the sources and uses the expectations are available on attachment 15, and 16 of our supplement.
The low end of our full year 2021 F. A way of guidance range suggests we achieved the midpoint of second quarter <unk> guidance of 48 cents per share and experienced flat sequential growth for the balance of the year.
As Mike discussed we are encouraged by the trajectory of several forward looking the operating trends and believe we are well positioned to drive rate growth as we enter the peak leasing season.
We are optimistic that these dynamics when combined with the accelerating economic recovery and eventual easing of regulations will provide a growth tailwind as we progress throughout the year.
As such we plan to revisit guidance on our second quarter call. Once we have further evidence of the sustainability of recent positive operating trends are deeper into the leasing season and have a clear view of the regulatory environment.
Next the transactions update.
The primary objective when we undertake transactions Mr remained diversified by market mix price point and location with end markets.
While our portfolio wide urban suburban and the a b quality exposures will oscillate over time as we pursue higher return deals.
The 21 markets. We operate in provides ample flexibility to utilize our value creation drivers to enhance earnings and NAV growth.
We believe these tools allow us to pivot to the right capital allocation decision and consistently generate outsized yield expansion overtime on investments, which provides a repeatable enduring and compounding set of advantage versus the private operators on public peers.
These drivers include.
One of our ability to improve core operations <unk>.
Examples include implementing revenue management software charging view or location premiums and using our scale and markets to secure lower vendor cost.
Number two.
Implementing legacy operating initiatives, such as parking optimization short term furnished rental programs and renting out common areas.
Number three overlay on our next generation operating platform, which reduces head count needs improves resident experience.
And the smart home capabilities it brings data science into the mix.
Number four.
We're renovating apartments in common areas as well as increasing curb appeal where appropriate.
Number five utilizing predictive analytics and qualitative assessments to provide a better jumping off point for our investments in markets that are likely to produce better rent growth over the coming years.
We have found that the greatest opportunities for outsized accretion come from acquired communities that are mismanaged located proximate to other UDR UDR communities.
Those with renovation upside.
For a combination of the three.
Pairing this with premium priced equity.
Like what we did in 2019 and during the first quarter of 2021 only serves to further enhance returns.
This form of value creation is repeatable in any environment.
Given our ability to pivot the sources of capital between dispositions free cash flow and equity.
Proof of the accretive nature of our transactional value creation strategy is evident on the $1 billion of third party acquisitions completed in 2019.
Thus far the weighted average yield on these properties is expanded by approximately 35 basis points or 7% in terms of NOI growth to a five 1% yield.
This is a stunning result.
Let me say it again.
This is a stunning result, given this upside was realized during COVID-19.
A period during which NOI generally declined.
On the first quarter transaction activity.
During the quarter.
We sold two communities.
One each in Orange County, and Los Angeles for total proceeds of approximately $187 million of share.
At a low 4% weighted average cap rate.
We acquired or are under contract to acquire three communities.
One in suburban Boston.
And two in suburban Dallas for a combined $360 million.
All three communities are expected to generate outsized returns once fully integrated onto our platform.
With the weighted average initial yield projected to increase from mid 4% near one to mid 5% by year three.
This equates to an approximate 20% uplift in NOI.
Lastly, we committed to fund to DCP investments totaling $50 million.
Each of investment yields of 9% and includes profit participation of upon a liquidity event, which.
Which we expect to occur in approximately five years.
Please refer to yesterday's release for additional details on recent transactions.
Moving on.
Our investment grade balance sheet remains liquid and fully capable of funding our capital needs.
Some highlights include for.
First.
During the quarter, we entered into a forward sales agreements for approximately nine 3 million shares of common stock for a combined $405 million of future expected proceeds.
We anticipate using these funds on accretive acquisition.
<unk> and development opportunities.
Some of which we have completed and others, we expect to close on the coming quarters.
We plan to over <unk> of these investments.
Which should improve our leverage as measured by debt to EBITDA Ari.
The 0.1 0.2 times.
Second.
After using the proceeds from our $300 million to one 4% unsecured bond issuance from the first quarter to redeem higher cost 4% debt originally scheduled to mature in 2025.
We have only $640 million of consolidated debt for approximately 3% of enterprise value scheduled to mature through 2025 after excluding amounts on our credit facilities.
Our proactive balance sheet management puts us in a position of relative strength with the best three year liquidity outlook in the sector.
On a weighted average interest rate of two 8% the lowest amongst the multifamily peer group.
Third, we recently announced a 1% increase store dividend base.
Based on our 2021 <unk> per share midpoint of approximately $1 78 per share.
Our dividend payout ratio is forecasted to be 82%.
Resulting in approximately $100 million of annualized free cash flow after accounting for dividend payments.
And last as is evident on attachment foresee of our supplement.
We continue to have substantial capacity under our line of credit and unsecured bond covenants.
As of quarter end, our consolidated financial leverage was 35% on unappreciated book value.
And 28% on the enterprise value inclusive of joint ventures.
Net debt to EBITDA, our EBITDA was 7.0 times on a consolidated basis, but.
It would be six five times of outstanding for the equity agreements were settled during the quarter.
As of March 31, our liquidity as measured by cash and credit facility capacity net of part of commercial paper balance and including the future expected proceeds from the potential settlement of our forward sale agreements was 135 billion.
Taken together our balance sheet remains healthy our liquidity position is strong.
The forward sources and uses remain balanced and.
And we continue to utilize a variety of capital allocation options to create value.
Finally.
Subsequent to quarter end.
<unk>, which is one of the investments held by our of TV, one and two of which we are one of the lead investors.
Entered into a definitive merger agreement with a special purpose acquisition company.
Consummation of the merger is subject to regulatory approval stockholder approval and other customary conditions as.
As many of you know UDR was an early adopter of smartphones smart home technology across our portfolio.
As part of the foundation for our next Gen operating platform.
We are pleased to see the rest of the industry following our lead and its utilization.
On the benefits of <unk> has provided to our investors through tangible bottomline results store operations and yet to be realized depreciation within our R&D investments.
At this time.
There are still many conditions to be satisfied, including those mentioned moments ago.
Before the merger is closed and smart rent becomes a public company.
Related to implications to UDR.
Of the approximate $25 million valuation of our Ari TV interest presented on 12 E of our supplement we will continue to be presented in accordance with GAAP.
Utilizing the fair market value of accounting and the valuations provided to us by our ATV.
Based on information provided to us by our television the valuation presented on 12 eight of our supplemental could increase to approximately $75 million on a pretax basis at the publicly disclosed transaction price.
But it depends on a number of factors.
We do not intend to provide any additional commentary on this topic until it is appropriate.
With that I will open it up for Q&A.
Operator.
Thank you we will now be conducting a question and answer session. If you'd like to ask the question you May Press star one on your telephone keypad, a confirmation tone. When you take your line is in the question queue. You May Press Star two if you would like to remove your question from the Q4 participants using speaker equipment, it may be necessary to pick up your handset.
Before pressing the star key and the interest of time, please limit yourself to one question and one follow up so we may get the everyone's questions. Our first question comes on the line of Nick Joseph with Citi. Please proceed with your question.
Thanks, I was hoping you could compare of the recovery of you've seen thus far in San Francisco versus New York and then your expectations for both markets over the next few quarters.
Hey, Nick it's Mike Thanks for the question.
It's been interesting I would tell you just in General New York, San Francisco, Boston those markets have performed a little bit better than we expected to start the year and when you look at New York, specifically, we've been able to bring your occupancy from right around I want to say 94, 5% during the quarter of 96, 5%.
Day, and it's been promising to see the concessions continuously drop and really the last few weeks I would say.
In general we see net marketable improvement so just to break it down a little bit of New York average concession is still zero to eight weeks and it's very different by different parts of the city. We're seeing two to four weeks in Chelsea and then radar six weeks down on the financial district as well as <unk>.
Midtown.
We're still upwards of around six to eight weeks on Columbus square, but overall occupancy today is hovering around 96, 5% and we expect to see.
Our plans continue to improve San Francisco, specifically net that's been a little slower to recover we're starting to see some of that availability transition to occupancy as evidenced by our new lease growth down around 11 or 12%.
We started to see the occupancy from 92, 8% in <unk> to 94, 5% today and again concessions in this market have also come down on the last couple of weeks, we're averaging between four to six weeks of the hole, but I would tell you downtown as well as Soma is closer to that.
For the six weeks today, which is a significant improvement compared to just 45 days ago.
And from the new move ins that you have seen that picking up of demand are there any kind of interesting trends that you're seeing in terms of who's actually moving back in.
For the Department.
Yeah, we do have some interesting trends for New York, specifically move ins coming out from outside of the MSA, we saw about a 25%.
Number there and that compares to about 10% the year before and I will tell you something that jumped out to me is our 25% to 30 year old age group in that market is twice as likely to live alone now we've seen the stats go from 14% to 27% in that market.
And then San Francisco not as big of a difference we're seeing 20% come from outside of the MSA, it's pretty comparable to what we saw last year and the age demographics haven't changed as much in that market.
Thank you.
Yeah.
Our next question comes from the line of Austin, where Schmidt with Keybanc. Please proceed with your question.
Hey, good morning, everybody.
So Joe appreciate all the detail you gave on on guidance.
But just wanted to check and see if the math here was was right that if we look at the build revenue figure you had in April around $95 5 million and sort of apply of collection rate of you mentioned the high 90% range and assuming that remained stable on does that gets you pretty close to the midpoint of of the revised range for same store Rev.
The guidance.
No. So the way it kind of works on it actually tracks of pretty similar trajectory as our <unk> guidance.
If <unk> if you take the midpoint of expectations, both for F of Hawaii than our internal expectation for build revenue on the same stores, which we do expect to see a sequential improvement on both same store revenue and NOI as we move into the <unk>. If you flatline those for the rest of the year you get to the low end of expectations so that of.
Actively assumes that the reopening of paused theres no further improvement of our pricing power and the all the trends that we've seen that we're talking about on the second page of the supplemental effectively cease to exist. So I think a somewhat conservative assumption there.
But probably prudent given where we're at in terms of timing of the year with 70 plus percent of the leases left to be signed the economic recovery is still ongoing and of course of the regulatory environment.
To go to the midpoint you need to see that continued improvement as we move throughout the year.
The occupancy price empower getting the collections number up and bringing back some of those other income number. So you do see the near the intensity of continued improvement from <unk> into <unk> and <unk> to get to the midpoint of our high end of those guidance ranges.
Okay got it that's helpful. I appreciate it and kind of coincide with some of the commentary you guys had in the prepared remarks.
Secondly, just on traffic and demand you provided some good detail on there on on how traffic and visits have have trended.
It's al conversions rates compare versus historic levels.
Really what's driving that that big leg up what markets are really driving that leg up in traffic and visits and then our people is that really for people that are looking for the units you know call. It April may timeframe or.
Are you seeing people kind of start to look further out as some of these back the office states firm up.
Great question parts and I'll take the I would say, it's very market specific probably one of the best trends I've seen over the last few weeks is in some markets I've had kind of a 30 day trend that's higher than my current occupancy. So that tells me that there are some people that are looking to move sooner rather than later on when you have that type of trend you can really start.
Pushing on your your market rent. So that is places like the sunbelt for us its a Richmond Baltimore just phenomenal results over the last few weeks, but specific to traffic. When you look at that chart that we provided on page two and the new.
<unk> San Francisco, Boston, our traffic was up about 120% on a year over year basis, most recently and that compares to the rest of the portfolio of around 90% and then as it relates to converting we've been seeing.
As a percent of our home count of one 6% lease conversion, which typically in a normal time when I compare back to say of time like 2019, it's closer to 1%. This period of time, so I'm seeing leasing.
The more typical of the end of May early June timeframe.
And Mike This is toomey, maybe a follow up how much of that is the platform enable.
The deal with one more traffic doesn't cost us anymore in two of our people more likely to lease with the platform versus our prior stabilized period with leasing agents.
Good point in time, obviously, the we've opened up the funds right. We've talked about this on the past by allowing more people to come to the property. We can send out some sometimes upwards of 567 people at the time first one to go see different units on the property. So obviously, that's had a pretty big impact on our traffic you can see it.
On the numbers I would say its increased debt to fold in a lot of markets.
So that's that's probably one of the bigger factors going forward on on how we're able to just kind of continue to drive that traffic number and convert at a high rate.
That's great detail on appreciate the follow up to the follow up thank you.
Our next question comes from the line of Jeff Spector with Bank of America. Please.
Please proceed with your question.
Thank you good afternoon.
First question I'd like to turn to supply can you provide some comments on supply nationally this year and any initial thoughts on 'twenty two and the.
If possible if there's any you know keep watch markets, where even regions sunbelt versus let's say kos.
Yes of course, Hey, Jeff Good morning, Joe.
Starting with 21.
Msas in terms of Udr's portfolio, we think we're probably going to be up about 10% to 20% in terms of supply growth. This year that equates to roughly one 5% of stock that number has come down plus or minus 10% from what we would've been talking about a quarter ago. As we have seen continued revisions on delays taking place on some of the coast.
So the picture is getting a little bit better there in that sense.
Sub market wise for us in terms of competitive supply overall for our portfolio is looking like it's going to be flat to down actually so the competition wise looking a little bit better than the MSA as a whole I'd say the markets that probably worked best for us in 'twenty one.
The Boston, the Orange County, Baltimore, and inland Empire are those that look a little bit more difficult Northern California, L. A New York Nashville, Orlando on Seattle.
If you start the fast forward into 'twenty two 'twenty three.
Like all of us have been a little bit frustrated by the stubbornly high number of permits and starts. So we probably don't have quite the tailwind that you've seen on historical recoveries coming from the choking off of capital and supply as we get into those years.
The beacon relative to starts on permits are down plus or minus 10% off of peak levels. I think originally as you look through.
Clearly the coastal markets have come down more of Sunbelt has remained relatively static and the.
The trend that you see even when you crossover and of the single family housing market as you start to think about total housing supply that's out there.
So markets that are kind of best and worst, but we're keeping our eye on the.
The mortgage that look to be a little bit more troublesome on markets like Raleigh, Phoenix, Charlotte Austin, Denver, Nashville, So a lot of the sunbelt markets.
The coast.
Yeah, I'd say the ones that look a little bit better Boston, New York L. A San Fran and then.
Even within the Sunbelt stylus looks a little bit better Orlando looks a little bit better and then the idea of it looks a little bit better. So generally speaking high level of the sunbelt just not seeing the same reprieve on supply on a forward basis.
Thanks, Joe that's very helpful. And then my second question Joe.
On your.
Some of your opening remarks really appreciate.
Some of the color in and of the details you provided on the value of UDR has created and the growth on assets you acquired.
Especially as you mentioned during the pandemic.
The NOI increase one of them.
They must UDR from doing more and more acquisitions is it capital competition resources.
Have you have you considered to do in an open end funds.
<unk> business something similar to prolong the just to really grow that business to get back into that.
Yes, the biggest inhibitor for us in terms of external growth is probably going to be the opportunity set available to us. When we go through that list of value creation mechanisms that are available beds. The ops the initiatives the platform the capex programs.
It's not as if every deal that cross Harry on Andrew's desk presents that opportunity. So the ability to ferret through a wide swath of opportunities across the markets that we're targeting.
Have them figure out of the Submarkets that we want to be on and then put together of the business plan around those assets. So the ops can go operate those assets and execute upon it and get the upside came from that for in a half cap of five and a half GAAP overtime.
Those are not a dime a dozen so I think the opportunity set is probably the biggest inhibitor to go out there and continue to take advantage of the competitive advantage that we have in place the sourcing and the capital. We always have assets that we can turn around on cell that we think may be maximized from any one of those perspectives. So we can always.
Go find assets to sell on recycled into additional accretive opportunities, but I think the external piece of limited by the is.
As it relates to the second part.
The business.
Have a great JV partner on Metlife that we continue to be partners with the very much enjoy operating with so we don't have any channel plans to change from that perspective.
The fund wise, it's not of Avenue that we've explored.
Keeping the value creation in house, and having that fully accrue to our shareholders is generally beneficial.
Complicating the business generally not something that we've tried to look to do so something made on the road will explore and discuss on the board, but no plans of this time.
Thanks, Joe.
Our next question comes from the line of Rich Hill with Morgan Stanley. Please proceed with your question.
Hey, good morning, guys on.
On to maybe pick your brain about squaring same store revenue compare to some of the operating metrics that you're comparing notably the blended spreads I think blended spreads have remained.
A really solid and stable.
Over the past several quarters, but but same store revenue growth has remained much more negative and if I'm looking at Costar data it looks like new lease spreads troughs.
Our effective rent growth should I say trough down at a similar level to two peers, but you had a steep of recovery. So I guess I'm just for.
A long way of asking.
With renewal spreads with where they are where occupancy trends are going and taking advantage of when taking into account the bad debt why shouldn't we expect to see same store revenue growth, even better than where it is right now.
Yes, Thanks, Richard Joe maybe I'll turn.
Turning to my ex for some details I think in terms of expectation of revenue growth.
Clearly, we do expect to see given the fundamentals that we've displayed on page two of the supplemental we do expect to see an acceleration in our year over year performance of we move throughout the year <unk>.
<unk> likely remains in the.
The negative territory, but we do believe will flip over.
Maybe even as early as June on a year over year basis, but definitely on third quarter given the trends that we're seeing so we do think all of the efforts that we put forth on operations, we will start to show through on the year over year number of pretty soon here.
As it relates to the I think your comment specifically starts to come and do a little bit on page four of the press release in terms of the blends that we show a plus or minus down 50 bps throughout most of the cycle for.
Within the page for table the year over year contribution of growth that minus two 6% for gross rents.
I'll spend some time on that is I think concessions occupancy loss of bad debt reserves of probably a little bit more self explanatory.
But the walk from how you get the blends to that down to six.
Keep in mind that blends are lease to lease so you have to of a new lease in place.
To actually capture that metric. So the 50 basis points down really explains only about 20% of that down to six.
What you're not seeing here is that we do have a lot of units that were occupied in <unk> of 'twenty debt.
For higher rents in the urban coastal markets that are sitting vacant today and.
So that is not captured in the blends when they do get leased up they will start to show up on blend.
If you have four of five 600 units out there in some of our major coastal markets that are of much higher rents that are sitting vacant that revenue stream has been lost and that really explains the other 80% of that down to six.
Over time, obviously as you start the lease those units, it's going to be a positive to build revenue positive the occupancy positive the same stores.
But could potentially weigh as you put new leases in place and some of those more distressed markets at lower rents.
The way on new lease pricing dependent on where they're going but I think you heard from Mike in the opening comments there, yes, the trajectory on those markets clearly headed on the right direction, retaining price and power of driving concessions down so.
We hope to not see that negatively impact blends, but do you think it's a positive for a year over year as we move for it.
Got it and I guess I have just to qualify all of the question in your fair to call me an idiot it wouldn't be the first time that didn't carbonetti of today and certainly not the first time of my career, but why wouldn't that be included in our economic occupancy and happy to take it offline. If it's too wonky in the question, but just trying to square it with.
Our sort of horseshoes and hand grenades Mac.
[laughter], Okay, you can call me on India.
Both of the close enough is okay rich.
We can take it offline on that walked through the depth of definitions of little bit more detail in terms of how.
How we allocate the different dollars between physical and economic.
So why don't we take it offline we will take it through there.
And if others have questions as well we can go on to kind of the details on the minoshe on it got.
Got it Sir so one more question as we just think about.
Looking forward.
You are obviously pushing rents.
And a really nice pace at this point it looks like the recovery is clearly and we can debate how good same store revenue is going to be in the second half of 'twenty one into early 'twenty, two but I guess the question I have for you guys as you start looking beyond the.
The next 12 months.
What's the stop you from pushing rents, even more and what I mean by that is the seems to be a lot of demand coming from millennials and disease.
Yeah.
Maybe supply pressures began to abate a little bit but is there a scenario where the.
Where were for occupancy actually allows you to push rent, maybe even higher than where you were in 2019 or or beyond that so I guess I'm ultimately asking a question about the longer term can you outpaced inflation and it seems like given the backdrop, maybe that's a reasonable scenario.
Yeah Rich this is Mike I'll take that I think just generally speaking again, we are pushing rents and we'd like to push it until it breaks if you will in some markets, we're able to push a little bit higher others. Its a struggle and it it comes down to what's happening within these markets. So I think of good example for US today is.
Places like Orlando, we compete with a lot of private operators and we can push so hard but at some point they start doing something with concessions or lowering of market rents. It puts pressure on us. So we manage to call. It that 30 day to even eat we trend and the bonds or occupancy stable we're going.
Keep pushing and then it comes down to the regulatory environment just in terms of what we actually can charge in some places we and specifically the renewals were still 20% of them. We can't charge anything. So we're limited by that we're watching that very closely and as soon as that opens up that's going to give us a bit of.
On lift off.
Okay guys. Thank you very much I appreciate that.
Additional detailed follow up.
Thanks Rich.
Our next question comes from the line of Rich Anderson with S. M. D. C. Please proceed with your question.
Good.
Morning.
So first question for me is.
Sort of what was just alluded to about the private competition.
Part of the problem with the multifamily business as you have 80% 90% of the ownership in private hands on a lot of that is maybe not so sophisticated particularly relative to your nexgen platform and I'm wondering if this environment. Besides of them you know kind of acting in the inefficiently and screwing up the math for you guys with concessions and whatnot.
Have people thrown in the towel and gotten out of the business to some degree we're seeing that in New York of lot of the condo sales that were hearing about are actually invest the former investment properties by mom and pop owners that have just decided not to rent apartments anymore are you seeing a silver lining from COVID-19 potentially that you get a little bit more.
<unk> in your competitive set.
Hey, Rich this is toomey.
I'd say theres always going to be an efficient operators in the marketplace as long as it's a fragmented industry and certainly you can see from our purchasing over the last couple of years.
Adept at finding that opportunity and executing on it with respect to seeing operators in the marketplace pull product off.
Well, let's hope they do sell it gives Mike and operating tailwind that he can take advantage of and we'll see where that plays out.
The bigger question on.
On most investors' minds that owned today is what our interest rate's going to look like and what is the new tax law going to look like and and I think we're going to find that out over the next six months.
Both of those may yet they break of certain way.
The free up a lot of assets for purchase.
It has typically been the pattern cash.
The gains going up the level of Theyre talking about would be one thing the 10 31 potential of elimination would be another.
Those probably push a lot of assets from the hold pattern to the sale of pattern of our exploratory the pricing and you couple that with potential interest rate increases are proceeds constraints.
The it pushes more assets into the middle of the table. So I think we're well positioned to take advantage of that should unfold.
And I think we'll have our answer in the next six nine months.
Okay, Good and then.
On somewhat unrelated question, but a bit related I guess talking about multifamily.
So the.
I guess, Joe you went through the discussions about investing in acquisitions and cap rate returns on all of that but what value do you guys placed on the kind of the snapback of performance in various markets over the next couple of years, which we all expect to see which may be in the natural level of of.
Of growth as we kind of recoup lost ground or are you looking past that when you're underwriting deals and not putting as much value on that kind of a short term phenomenon really thinking 10 years out.
Okay.
Yeah, we're really trying to look more on that kind of afford a 10 year timeframe of when we're thinking about these assets clearly you've seen the pressed on the lives coming on some of the more harder hit markets, but if NOI was down 10 or 20% in New York and San Francisco, We never saw asset values adjusted that degree so youre not seeing a one day one adjustment NOI on asset Valley.
So it's not as if you can take advantage of the upcoming the NOI stream by buying the depressed pricing. So while we do fully expect that youll see that short term phenomenon of coming off of low base you see the momentum in our press release for some of those more harder hit markets on a sequential basis and we believe it has come in we're seeing that's common.
But we're not necessarily factor into how we think about our diversified portfolio. We're trying to think more of that for the 10 year timeframe.
And you can kind of see the incremental deployment in sourcing that we've done are based.
Based of our ports portfolio strategy work here on the recent quarter. So you know of buying some more on Boston and D C.
Philly, Dallas, Tampa et cetera, and then.
We're seeing a little bit in southern California, as well, so a little bit of the changes.
Changes on the margin, but it's very much on the margin, it's not going to be a big shifts given that we're already starting with a pretty strong position with a diversified portfolio does the.
Snapback almost caused the distraction make it harder on direct and see through to the four to 10 your timeframe.
Yeah.
Does it muddy.
Vetting process is my question.
Rich this is Harry I think I'll jump in I mean, the I.
I think the what will we focus and we realize we're gonna get market rent growth and that's been a very you know it should be priced in the assets.
But the assets of the work we're buying we're sourcing properties, where we believe we can push NOI above market rent growth because of the market rent growth. The theory is price might be there might be some inefficiencies, but primarily we're focusing where we can.
Do something with the other side either with the platform we buy of property.
Near other UDR properties through some capital program so that.
We generate outsized NOI growth over and above the market and therefore outsized returns.
Got it thanks very much.
Thanks Rich.
Our next question comes from the line of Rich Hightower with Evercore. Please proceed with your question.
Hey, guys.
From the third or the fourth rich and of ROE. So I don't I don't want to confuse anybody but thanks for taking the question here.
So one quick housekeeping on I apologize if I missed this earlier.
But.
Tell us what's driving the 50 basis point midpoint reduction in expense growth. This year, if don't mind.
Hey, rich its Mike I'll tell you. It's it's two things so we're actually seeing a benefit both on our controllable the inter non controllable right now and a lot of that I would attribute to the platform on the controllable side for example, our expense growth in the first quarter was around 2% of lot of it had to do with what was going on with the.
The snow storms down in Texas as well as in Richmond, Baltimore, if it wasn't for that are of controllable expenses would've been closer to flat. So we're seeing pretty good trends as we move into <unk> and <unk> just as it relates to personnel reductions and things of that nature and then on the non controllable side, our taxes had been comes.
And better Joe can elaborate that on more of a it's both components for us today.
Yeah overall on the real estate tax side rich.
It came on at $2 seven on the quarter. If you look at attachment six with on the Sop for.
For the full year, we think the numbers probably around 4% growth.
That's down about 100 basis points from our original budget budget.
Really driven by some of the valuations coming in better than some of the appeals work that we've had so yeah. The.
The California, we've had a number of appeals on valuation wins.
Some others throughout the portfolio as well, but.
Still some risk out there as it relates to Florida, and Tennessee, and Texas as well as Boston and New York in the back half of the year, but.
On a lot better with kind of derisked of that piece of the equation and feel better about where we're going the other one.
Okay. That's helpful and then Mike maybe just to follow up on some of the the platform related improvements you mentioned that inc. In the prepared comments.
That you as a company you're just scratching the surface of what's possible and I'm curious if you care to expand on that.
At this time.
Yeah, Rich we've talked a lot of in the past we were really starting to get into some of the data science and I gave the very brief answer on kind of what we're seeing with demographics I can tell you. We have a lot of information that's going into the system with all of our data center and we're starting to really again, just scratched the surface on what we can.
Tap into and it's pretty exciting just to get an idea of what opportunities are out there we're starting to.
Putting ROI on them, if you will understand kind of how much returns there how much time, it's going to take but we've got.
Over the next couple of years, some some leeway here and we will continue to push on it but we've been very excited about platform. One point O. I did mentioned in my prepared remarks, we've transitioned 16 of the 21 margin, we're getting close to 30% reduction in head count head count at this point, our heat maps are up and running we're starting to see that play.
Through on our blended rate growth of residents and prospects like what were doing evidenced by the NPS scores continue to increase and at this point, we've rolled out 43000 smart home. So we're getting close to finishing that up too.
Rich this is toomey just to add on to Mike and.
Because I can get in trouble and he can't on these things.
In the self service model, which is really the core of the platform.
You'll find the opportunities in the following areas and immediately as the cost structure of the organization, but beyond that is the customer satisfaction potential.
And understanding in more depth and we've hired a group to help us work through understanding the sales cycles in our opportunity set and where we failed today.
And so in today's leasing online.
Or on a touchless, we actually touch the customer seven times.
For the truth is we probably don't need the touch them that much but we're trying to figure out which points of that touch cycle and of sales cycle actually lead to a successful sale as an example.
Mike's demographics.
You've seen our power of our pricing by home because we're tracking 10 years of data and just can figure out what the right renewal strategy should be for each individual and not a holistic mail out of the offer and see what they think but actually customizing net to their situation and their patterns.
So those are just two real simple examples I think others and of self service model go into the speed and ability to interact.
You won't want to said at a kiosk at an airline industry and wait for 10 minutes for service you want it to be three clicks and done.
As we learn more and more about those things. We're obviously focused on the margin customer service angle of it.
We think theres plenty of room to run down this because of lot of other industries are way ahead of us.
Unfortunately, I think we're in the lead on the multifamily space about thinking about it executing on it and we want to maintain that.
Okay, great color. Thank you.
Our next question comes from the line of Neil Malkin with capital One Securities. Please proceed with your question.
Yeah.
Hey, everyone. Thanks for taking my questions.
First one is on I guess capital allocation. This.
This quarter and then subsequent.
A lot of activity in the Sunbelt, specifically Dallas in the suburbs of Dallas on.
You sold some California product so on.
Being that you guys have excellent technology and data science and you look at analytics in various ways.
What is what does that say about.
How you think these markets are going to shake out and how demand trends are going to shake out over a medium to longer term period before you've said you know you don't want to make any.
Big moves are big decisions, you want to see how the dust settles so to speak so.
The time or Joe.
Are you guys any closer to making that sort of move of decision and what is the investments you've made recently kind of sad.
Yeah, I think the recent capital markets activity.
Effectively demonstrates how we're thinking about the.
The portfolio on the margin.
We've talked about the principle by which we operating which has maintained diversification. So we think that's work in the most recent downcycle will work on the up cycle as it has historically it provides a good jumping off point for us on our investors to deploy capital and create value over time, which you've seen us continuously outperform on cash flow growth for us.
For the last almost decade now so.
One of maintain that.
As it relates to Dallas, Dallas ranks I'll say middle of the pack and our quantitative models.
But it ranks very well on the qualitative side.
The affordability the corporate headquarters corporate re loans, the new hire and comes out of the attracting and the demographic growth of Theyre seeing sort.
We do have a pretty high degree of positives on of market level related to Dallas.
And then it comes down to the opportunity with in those markets.
In terms of making sure that of checks all of those different value creation boxes. So.
So a little bit of of how we're thinking about it but again, it's going to be very much on the margin.
Overall, though I think all of these markets have the ability to do well going forward its not as a force, saying Southern California, Northern California, and New York et cetera cannot perform on a go forward basis. We think they have a near term of very strong rebound coming as demand comes back and hopefully as regulatory restrictions come off longer term they'll remain hubs.
In their respective industries, it's just that they're not going to get the monopolistic share of jobs and income. So they've had historically so and stood of outperforming 70, 80% of the time on a rolling 10 year basis, maybe they are more in line with some of these other markets that are becoming more of a hub or more of the ecosystem. Some of these future drivers of the.
Economic growth and job growth.
Yes, I appreciate that and yet the really good way to look at it and its my view as well.
They may be DCP slash development.
I think it's well understood the material pricing has gone up quite a bit on the lumber side, especially just wondering if you are.
I've seen the DCT.
Pipeline of potential get harder.
I guess decrease a little bit in and how do you how does that you know the.
The sort of rising price environment.
<unk> your on balance sheet development decisions.
Neil It's area I'll start and then Joe May jump in.
On the DCP side, the number of opportunities remains elevated.
As of the ton of developers that are looking to.
Capitalize their projects capital overall is more difficult for the developers and we've talked about this before debt proceeds are lower LP capital is more difficult.
All of which increases the demand for DCP.
However, it is taking a long time to work through these projects as developers.
The work on their capital stack and the overall economics and I think maybe it's worth just touching a little bit on the lumber.
Number on other material costs I mean lumber obviously, we're in the midst of.
We hope and expect us of bubble in terms of lumber pricing.
The lumber overall is only about.
3% of total development cost on a normal wood frame project.
So even if lumber doubles, you're talking about the one.
Hundred million dollar project goes to $103 million, it's 15 or 20 basis points and that's obviously an extreme outcome.
Other material cost also are increasing as you mentioned.
As we think about materials.
We think that typically is call it 15% to 20% of total development cost.
So again EBITDA materials increased 10 or 15%.
You know, that's 2% to 3% increase in total development costs. So it's meaningful.
But it's not it doesn't necessarily.
The kill these deals and if you think about it that's maybe 50 to $75 a month rent increase which you know.
On a recovering market.
Often we can overcome it.
We continue to see material shortages the type of thing. So we are operating in a difficult environment.
But I can tell you as we look at the on balance sheet development projects. We don't change our long term strategy is the result of short term cost bubbles.
We believe we can create value through our development capabilities and if lumber and other material costs were to stay high.
We would just consider that in the context of our overall economic analysis before we start the project.
Okay.
Okay.
Our next question comes from the line of Amanda Sweitzer with Robert W. Baird. Please proceed with your question.
Thanks, I appreciate that.
I don't know about the development your development guidance did go down of debt. This year is that just less optimism about your ability to add new projects of the pipeline beyond Panther are you seeing other more interesting opportunities with N BCP on acquisition.
Hey, Amanda it's Joe Yeah. When we originally put that guidance range together I know, we put a fairly wide range out there.
At the lower end, even up to the midpoint of the effectively encapsulates all of the known spend so when you look at attachment nine at $500 million.
Encapsulates that band and then we have a number of the shadow projects. If you will.
That are sitting out there and that we may potentially start, but it really depends on the third quarter fourth quarter, even into the first half of next year.
We do have a land site that we're working on in Tampa that we hope to.
Get on the balance sheet and hopefully start within the next 12 months, there's the densification opportunity of talked out of Newport village.
In suburban DC that we've talked about which is about $140 million project. There's the Alameda parcel that we took on the balance.
Now on sheet from Northern California here subsequent to quarter end. So we have a number of other kind of projects that we're just working on timing and hopefully get started but brought down the top end of the range slightly.
Yes.
That's helpful and then flow.
Moving up on that I hear you on rising construction cost not impacting overall development cost that much but where are you seeing good balance and yields.
Yields trend, you're either pre COVID-19 true today.
And how does that stack up with what Youre seeing in other.
Opportunity.
Yep.
Maybe two things on that on attachment nine debt current pipeline.
Just in terms of cost being locked in with.
We've already bought out all of the lumber that we need for the next 18 months for these projects. So we do not have the risk associated with it. So in terms of cost estimates of cost overrun risk. We see that is de minimis for the existing pipeline.
The bubble on lumber prices that we see today it really factors under the Ford underwriting in the future starts which as I mentioned, we're probably not start another project for another two or three or four quarters here at this point.
As it relates to the yields that we're underwriting we have not adjusted from what we've talked about historically, which is kind of high fives low sixes.
Type of stabilized yield most of the projects that we look at are somewhere in the five on a half range on a on trended basis and when we say on trended we're talking about current market rents as we look at the current NOI stream off of that asset relative to a trended cost. So we look at the forward cost at which point in time, we would.
Starting to deliver that asset so the <unk> that we look at our five and a half overtime of course, we expect rents to grow on catch up to that cost and grow two of 6% stabilized.
That's helpful. Appreciate the time.
Thank you.
Our next question comes from the line of Juan Sanabria with BMO capital markets. Please proceed with your question.
Okay.
Good afternoon.
Just hoping you guys could give a little bit more color on the renewals and the impact on regulation of you said that there was 20% of the portfolio.
Couldn't push but do you have.
An estimate as to what that would have been had you have the flexibility to drive for us renewal prices.
Yeah, Hey, why it's Mike, it's about 70 basis points.
So we would have been 70 basis points higher if we werent.
Zero percent of 20% of our renewals.
Great. Thanks, and then on just the new lease.
Reds for rate growth improved kind of 30 bps from the fourth quarter to the first of its down two point for but can.
Can you give us any color on how that trended through the quarter or maybe where April standing.
To day, just to give us a better sense of debt of the momentum for the new lease rates.
Sure. So January we were negative 2% followed by February of negative two and then March was negative three April is looking very similar to March just as we again transition some of our our vacancy the occupancy and some of these harder hit areas and then after that I expect it to start actually improving significantly as we go in.
To July or June and July as far as renewals go we averaged $2 seven for the quarter January was two five February was two six margin three O and going forward, we expect it to be about 50 to 80 basis point increase throughout the rest of the <unk>.
Super helpful. Thank you very much.
Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Hey.
Thank you for for keeping the cargo in two really quick ones first Mike you mentioned something earlier in your discussion on 15 to 20 million net of savings or improvement to NOI.
And I think part of that you referenced as maybe at its cost cutting or maybe it's just employee attrition, but just a bit more color on what the initiative of ours and the time frame that we should think about that 15% to 20 million of savings.
Yeah sure Hey.
At 15% to 20 million of it is really as it relates to our platform. So platform. One point now and again, we started this back in 2018, we will see about 75% of the come to fruition by the end of this year and then we have about $5 million that would mean in 2022 that come from no cost savings as well as some of our.
Revenue increases.
The increases based on some of the data science that we're seeing.
Okay do you want to point out to Alex.
Net 15 to 20 of that we always talk about is related just to the base portfolio that we had back in 2018, obviously, we've continued to add assets. So the true benefit is above and beyond that amount, but with that really gets reflected on the upside that we talk about the new acquisitions in terms of the 10% plus upside.
As reflected on those as well so there's even more upside from the platform than what we typically quantify okay, but the point is that 75% of it is already reflected in it by the end of this year. So effectively think of your guidance. So there's another 25% of this into next year.
Correct.
Second question is the wonderful day.
The way of New York rent control. So you know the good cause of action legislation seems to be alive, and well in Albany on whether or not it passes we'll see but with that in mind, regardless of what happens. When you guys think about calling your New York and Manhattan exposure, and then increasing in Jersey and Connecticut.
Yeah.
Hey, Alex this is Chris.
Let me take on.
Really good question in New York as a part of it but let me take a step back real quick.
Provide maybe just the high level overview on a couple of regulatory topics because I would tell you over the last year.
I've provided a lot of negativity to people listening on the call I provided a lot of negativity to Mike and his team, which I'm sure. They are appreciated but theres. Some really clear positives now do we want to make sure people understand.
First of all of it.
I'm really confused anyone clearly and businesses reopening returned to work vaccinations continue in earnest across our markets to add.
Varying degrees and we really do think while people get very focused on things like eviction, moratoriums et cetera, but these will be the biggest drivers of kind of how our business performs going forward.
Once again, we continued the incremental progress with those on second of all of the rental assistance and Mike talked to the little bit in his prepared remarks, but we have been actively pursuing rental assistance dollars whether at the local state federal dollars whatever it is.
Really since the beginning of the first quarter.
We've seen some success as Mike talked about we've kind of recovered about two 5% to $2 $6 million thus far.
Which I think is a pretty phenomenal result, given the fact that a lot of programs really just started opening up in the last months.
Breakdown in current application process of about $11 million of our AR is actually an application process, we're not sure exactly.
But our hit rate on that is going to be going forward, but we feel good about debt and really all of these numbers you have to remember before we've gotten most of the anything from California really up to now and it's just been local programs there.
So that's kind of on the positive side on the on the negative side, a little bit because I said eviction moratoriums, obviously, we're probably going to see an extension of New York because of their program is not up and running yet we're looking at mid may there.
But I would remind people that we've operated those under those for a year now we feel good about our ability to continue to drive growth even with those restrictions embraced in place and then rent control as you spoke about.
Have yet to see if 30 82 passes in New York, It really Hasnt moved out of committee.
Thank everyone kind of understands or should be aware of the fact that.
Really is kind of universal backed on rent control the sky.
And just kind of addiction.
And once again, we will see where that goes we had some successes here in the state of Washington, a couple of bills for rent control got defeated.
But really it's been a topic that has been put on the backburner two of certain extent I think as people of focus more on digging out of COVID-19.
That's kind of just a little bit of of regulatory overview positives negatives, Joe from kind of talked about capital allocation in New York on Horn.
Alex just really briefly.
The regulatory is one of the qualitative factors, we incorporate into the port strap process. So.
New York and some of these other coastal markets don't necessarily screen well on that factor, but may on a multitude of other factors both quantum call.
But at the end of the day or are we going to sell out of those markets. No. We wanted to maintain the diversification, we're not going to run away from just one negative factor when theyre still of lot of positives to look too in these markets. So I think that's one of the keys of the diversification of the ability to insulate.
From the ups and downs that come with each market and I think you also got to remember the second derivative impact of the to the extent that it scares away capital from certain markets such as this on new supply and the affordability of the comes with that.
Clearly supply or capital will find a home somewhere else on you may have supply pop up in the sunbelt markets of sort of saying what the permit data. So it's not a one to one relationship of regulatory as bad therefore don't invest.
Well, that's why I was mentioning Jersey, Connecticut, because obviously, if new York becomes rent control than Connecticut, Connecticut, and New Jersey, presumably would have accelerated rent growth to offset the lack of turnover in New York as people hold on to their apartments.
Correct, Okay, and we take a look all of those markets, we actually do a subset with imports for out of New York Jersey in Connecticut.
Speaking of New York royalty interest from.
Okay listen thank you.
Thanks, Alex.
Our next question comes from the line of Handel St. Juste with Mizuho. Please proceed with your question.
Hey, there good good afternoon now.
I won't go back from the beginning of the call here I was intrigued by some comments on what you said, where some of your of bunches of coming from 20% to 25%.
Outside of the New York and San Francisco of Msas, So I guess.
I'm curious just what people are migrating back to some of these coastal markets and the number of residents, leaving the coastal market day.
Increasing at least in the short term any reason at all to be concerned about maybe the near term demand of pricing power on any of your of non coastal markets and then maybe of your spot that can share. Some nuggets on we're broadly the rent income ratios are cross, perhaps some of your sun belt in coastal markets. Thanks.
Sure Mike first just so I can remember those questions I'm going to start with the the last one on rent income Hasnt really moved it's still around 24% we screen based on a gross number and if you recall our strategy was to keep gross from tight and really use concessions. So it's been nice to see kind of.
The stabilized number on that from in terms of the move ins and move outs, and where we are with occupancy and demand.
We're still coming off of some pretty big loads. So while things are improving it's still has a little ways to go on some of these harder hit areas, but I'm telling you. The last three weeks has been very promising demand has been stronger than we expected and again one of those markets that I've referenced earlier, New York had a.
Higher 30 day trend and of our current occupancy. So we're actively pushing rents right now to see what we can do.
And all of its Joe I think also embedded in your question is just on the pricing power of risk related to sunbelt as you potentially see migration back.
Early on the cycle is kind of the topic de jure the everyone was going to result in the Max of mass exodus out of the urban.
The coastal cities I think there's been enough research now at this point on the kind of proves that didn't really take place a lot of those individuals' simply moved home stayed within the markets moved out of the suburbs. So.
Im not sure Theres, a risk to the Sun belt in terms of reversion trade I think the sunbelt performance relative to the coastal is was really driven by the different way of operating many of you keep those states and cities reopened in keeping the individuals' employed which I think as long as that continues which it looks like it will those will continue to maintain pricing power at the same time it kind of gives us the game plan.
On for what's going to take place on the coast. So we're seeing a day reopen we're going to get the demand we're going to get the pricing power on rents and occupancy will come surging back.
And have near term outperformance.
I appreciate that.
And a bit of of twist on the other question on capital allocation.
I'm curious on this day.
All of the middle of the pack in your proprietary model I guess I'm curious what's at the upper end today as the contemplate of existing and new markets.
And then.
All of ours that you're selling out of that you're getting when you're under the.
By doing the selling out of the block.
California on I guess I'm curious comparator, the how that compares to what you're buying in Boston and Dallas and they get the more interest really of what it would take for you to get more intrigued to invest more capital in places for penciling like coastal California, or New York.
Are there pockets of supply growth of that could be of opportunity against the regulatory relief I had so.
Just curious on again, you know, what's what's youre seeing that the attractive in your in your investment model here today, and then the thinking on places like coastal California, New York relative to the places like Boston and Dallas.
Yep.
You look at some of our actions over the last year or so.
Kind of gives you a sense for what.
The price screens of little bit higher within our qual process. So you've seen us add into D. C. So bid northern Virginia suburban Maryland.
Altamont continued the screen well Philly screens well.
You go down to Tampa, where we've.
The added a number of assets on that market has been absolutely on fire for us. So it kind of gives you a sense for what the screens well, but it really does come down to deal specific.
Given the competitive advantages, we have and the ability to pick up that extra 10%. We'll look at the deal in any market. There is the ability to outperform market average no matter, where we go.
So I don't want that to get lost that we're only going on myopically focus on five of our 20 markets. The team here is always looking across the entire portfolio for opportunities to create value. So I don't see that dissipating anytime soon.
I appreciate that any any color on comparative virus or debt.
Not at all.
Yeah.
When do we do to our underwriting comparisons typically will use utilize a baseline of 3% in terms of forward market growth independent of which market. It is and then we'll do a gradient that looks at the best and worst markets for where we think it could outperform and underperform.
The scenario of analyze those numbers. So the IRR differential is primarily coming through your ingoing cap rate in that analysis given.
Similar long term growth profiles that we assume when we do the IRR math.
So you're really talking about selling at a for in a quarter and then you throw of 3% growth on there and get around the southern IRR or you go and buy a for in a half of how says outsize growth for the first three years getting up into the five on a half range of the steady growth from that point forward.
So you are definitely picking up the call. It 50 to 100 basis once on the IRR spreads between the buys on the sales.
Okay.
Thank you.
Our next question comes from the line of Alex Thomas with Zelman. Please proceed with your question.
I think taking my question.
We spoke a lot about the the next Gen program that you guys have been the adult eternally and obviously you're into the technology space I was curious if this is at all license the ball and.
That's the potential ancillary revenue screens on stream you guys discussed.
Going forward.
We continue to look at a lot of debt.
I will say that the vast majority of it can be replicated the.
The challenges might be cultural as well as the implementation.
And.
But we will continue to explore any piece of it that is license of all of our IP and.
The report on that later.
Got it thank you and one other quick one on the DCP deals.
This past quarter, Heather the group of turnaround of 9% of little below the average, but you have the upside participation.
Is that does.
Is that sort of the dynamic of the tradeoff there were actually a little lower return for the upside or was there some more competition in the market for the.
Pressuring the the spreads.
Yeah, I think when you look at those we've talked historically about our ability to bifurcate it and work with the equity partner on what May fit there.
Expectations and desires best So we're pretty flexible on our program in terms of going 100% fixed rate at a higher coupon or doing a lower effects, but more of a backend I'd say as you look at the deals today are call. It 80% 80 plus percent of the business is back end participation, which we are excited about given the cycle location.
And in the early in the cycle.
The special to have more back end participation. The economics overall I think are reflective of some of the difficulties Harry talked about earlier in terms of L. P of capital as well as financing were typically underwriting the 13, 14% IRR on those versus the 11 or 12% pre COVID-19 was our typical deal.
And then the Optionality you know the way we structure of these in terms of the timing for a capital event the ability to have back end participation things gives us a lot of optionality down the road on each of these assets as they get through the development and lease up process and come up towards the maturity and ultimately we'd like to go on a handful of these and.
It gives us the chance to get to know them a little bit better.
Great. Thank you very much.
Yes.
There are no further questions in the queue I'd like to hand, the call back to the chairman and CEO Mr. Toomey.
Thank you operator, and just some quick comments on closing recognizing.
We ran a little long today, but I thought it was very beneficial.
Thanks for your interest and time today and UDR.
Certainly you can see from our tone our results that were very excited about our business prospects and looking forward to talking with you more as we execute in this recovery cycle.
And so with that please take care.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.