Q3 2021 UDR Inc Earnings Call

Greetings and welcome to Udr's third quarter 2021 earnings call at this time, all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

As a reminder, this conference call is being recorded.

It is now my pleasure to introduce your host director of Investor Relations Trent Trujillo. Thank you. Mr. Trujillo 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 at IR Dot UDR dot com in the supplement we have reconciled all non-GAAP.

Measures to the most directly comparable GAAP measure in accordance with Reg G requirements.

Statements made during this 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 in our press release and included in our filings with the SEC, we do not undertake a duty to update any forward looking statements when.

When we get to the question and answer portion, we ask that you'd be respectful of everyone's time and limit your questions to one plus a follow up management will be available after the call for your questions that did not get answered during the Q&A session today.

I will now turn the call over to Udr's, Chairman and CEO Tom Toomey.

Thank you Trent and welcome to Udr's third quarter 2021 conference call.

On the call with me today are.

Senior Vice President of operations, Mike Lacey, and Chief Financial Officer, Joe Fisher, who will discuss our results.

Senior officers, Harry Alcock, Matt Coss at Andrew Kantor, and Chris Van Ens will also be available during the Q&A portion of the call.

Our third quarter F F O away.

Results achieved the high end of our previously provided guidance range and we raised full year same store and F. F O a guidance for the fourth time in 2020 one.

But the race was driven by strong widespread multifamily fundamentals.

The benefits, we are realizing from the platform initiatives and accretive capital allocation decisions.

All right.

Currently occupancy remains elevated rate growth is it as strong as I've seen during my 31 year tenure in the multifamily industry and we continue to successfully source rental assistance for many residents in need.

As we move into 2022.

We anticipate that our unique operating acumen and ability to accretively allocate capital across a wide range of markets should continue to differentiate us versus public and private peers.

These value creation drivers include first.

Our best in class next Gen operating platform.

Which widens our operating advantages first public and private peers, and broadens our acquisition and capital allocation opportunities.

The platform focuses on self service.

Enhanced resident satisfaction and expanding our controllable operating margin.

Through our associates' hard work, we have successfully reduced our onsite staff by approximately 40% since 2018 and.

And rationalized the rest of our cost structure.

Both put us in an enviable position as inflationary pressures Mt.

Platform, one point O initiatives will continue to yield bottom line benefits through 2022.

But we are already looking ahead to a new suite of initiatives that will drive additional revenue growth and margin expansion.

Mike will provide further details in his commentary.

And second our market selection and capital allocation.

Year to date, we have sourced nearly $1 2 billion of equity at an attractive cost and 300 million of property sales at favorable cap rate.

To Accretively acquired nearly 1.5 billion of high quality multifamily communities and desired markets.

These acquisitions are outperforming initial expectations due to strong market rent growth.

Proximity benefit for sourcing the deal next door.

And the implementation of our numerous and repeatable capital allocation value creating drivers.

While business conditions are as strong as we've ever experienced.

Sorted regulatory restrictions continue to limit our ability to fully capture the economic benefits of our current demand trends.

The regulatory environment continues to slowly trend in our favor and we expect to recapture deferred income, resulting from emergency restrictions as we move through 2022.

Moving on earlier this month, we published our third annual ESG report in it we summarize the company's progress towards its ESG goals.

Introduced enhanced greenhouse gas emissions and energy energy use.

Reduction targets and highlighted Udr's culture as well as the support provided for our associates and residents during the COVID-19 pandemic.

Our actions resulted in UDR being named the number one ESG performer in 2021 grasp survey amongst publicly listed residential companies worldwide with a score of 86.

I think grasp for their recognition of UDR as a global leader in sustainability and our teams for their ongoing ESG progress we continue to make.

In closing our success is driven by many factors.

But a key one remains udr's innovative and adaptive culture.

This insight was recently validated in our biannual.

Associate engagement survey, which was conducted following the implementation of platform one point up.

Primary takeaways from the 97% of the associates that participated included first UDR engagement and enablement scores are well above the norm for high performing companies at 80%.

Second 94% of the respondents felt a strong sense of culture.

Third nearly 90% feel those with diverse backgrounds can succeed at UDR.

Thank you to all our associates across the country, who shared honest and open feedback as we continue to improve our business practices, which enhance our status as well as being recognized as an ESG industry leader.

With that I will turn the call over to Mike.

Thanks, Tom strong demand for multifamily housing coupled with our operating platform advantages led to all time high occupancy accelerating rate growth and significantly reduce concessions during the third quarter.

These trends have persisted thus far in the fourth quarter postponing typical seasonality to mid to late October or two to three months later than would be normal.

To begin strong same store results supported third quarter F. F O way per share at the high end of our previously provided guidance range. He.

Key components of our 5.3% and six 3% year over year same store revenue and NOI growth included wage.

Weighted average occupancy of 97, 5% 200 basis points higher than a year ago.

<unk> blended lease rate growth of eight 2%.

Sequentially accelerated by 730 basis points versus the second quarter.

Year over year other income growth of 5.1 person.

Traffic that averaged 35% above pre COVID-19 levels as we continued to open the prospective resident funnel with our nexgen platform and drive additional pricing power.

And annualized turnover of 54%, which declined by more than 11 100 basis points versus a year ago and was approximately 1000 basis points below our historical third quarter turnover rate.

And by strong demand.

Sequential same store revenue grew three 6% in the third quarter and as implied by our improved guidance. We expect sequential same store revenue growth to be positive in the fourth quarter as well.

Regarding key operating metrics for October.

Occupancy remains elevated and has averaged 97, 1% as we continue to see robust demand well into what is historically a seasonally slow period of time.

Our slightly lower sequential occupancy as compared to our all time high third quarter reading has been by design as we've continued to drive rate growth to strengthen our 2022 rent roll.

Our two 6% anticipated earn in for 2022 is in line with our highest earning over the past decade and is approximately 150 basis points higher than our average, earning between 2016 and 2019.

Currently our weighted average loss to leases in the low teens, we're capturing this upside by driving rental rate higher which has led to blended lease rate growth of roughly 11.5% in October or 330 basis points above what we achieved in the third quarter.

Roughly 15% of our NOI comes from markets that presently have some form of regulatory restriction on renewal rate increases, but we are utilizing unique UDR attributes such as our various other income initiatives to drive revenue growth.

We believe we have an extended runway to capture additional embedded rent growth throughout the fourth quarter and into 2022.

Next concessions have virtually evaporated and are only being used in select sub markets and there are a handful of UDR communities in the San Francisco Bay area downtown L. A and the 14th Street corridor in Washington D C.

Our strategy of offering upfront concessions and maintaining gross rents during the pandemic is playing out as expected.

Residents are already accustomed to painful around which translates into better pricing power and higher retention at renewal.

As a reminder, in the fourth quarter, we will anniversary peak COVID-19 concession levels of three and a half to four weeks on new leases.

As such and with only nominal concessions today, we're poised to capture rent growth that is 7% to 8% above market growth.

Translates into mid to high teens expected new lease rate growth during the fourth quarter.

Well as we've continued to realize broad based strength across our portfolio in October.

Our sunbelt communities, which comprise approximately 25% of NOI.

It had been generating better than 20% year over year market rent growth.

While harder hit urban centers have risen sharply off the bottom.

It will take time for these markets trends to show up in our reported results due to our lease exploration schedule, but 20 of our 21 markets now have rents above pre COVID-19 levels.

The San Francisco Bay area, our solo Laggard should join this group in the next couple of quarters.

Moving on our success as a first mover in accessing rental assistance programs continued to benefit our collections and during the third quarter, we reversed $3 million of our cumulative bad debt reserves.

Year to date, we have sourced more than $19 million and assistance for residents in need with nearly $10 million of this coming during the third quarter.

We have another $11 million of applications in process.

Additionally, we are finding early success securing funds from former residents in California, and the state of Washington, who is unpaid balances were previously written off.

Due to our outreach programs former resident balances totaling over $2 5 million are in the rental assistance application process or have access to funds.

We hope to get more former California, and Washington residence to apply during the fourth quarter, while also participating in new programs such as the one in New York recently introduced.

Next we have fully rolled out version one point over our next generation operating platform across all of our markets. We believe the self service model, we have implemented over the past three years is unique in our industry and the numbers prove this out.

Since the second quarter of 2018, we have permanently reduced head count at our communities by 40% on average, thereby providing a strong hedge against elevated in place inflationary pressures.

Realized controllable expense growth that has been 360 basis points below the peer average over the last three years, which has driven our controllable operating margin 250 basis points above what a company at our average rent level would expect to produce.

Delivered products and services in the formats are residents prefer as exhibited by a 24% increase in our resident satisfaction score.

In an overall, 97% usage rate for self guided prospective resident tours.

Generated the best same store revenue growth and roughly 45% of the markets we share with peers.

First is it 30% average win rate among the peer group.

And generated more than $15 million of incremental NOI on our legacy communities with another $5 million expected through 2022.

In addition.

We have a demonstrated ability to consistently drive outsized growth at the communities, we acquire by implementing our platform and other unique value creation initiatives.

Thus far we have expanded the weighted average yield on our nearly $1 billion of third party acquisitions from 2019 by 55 basis points for the roughly $2 5 billion of third party acquisitions, we completed between 2019 in 2020. One we have on average grown revenue by 14%.

And NOI by 20% compared to the prior owner.

Reduced controllable operating expenses per unit by 7%.

And expanded our controllable operating margin by 400 basis points.

I credit Harry and our transaction team for finding acquisitions, where we can create value through our platform capabilities.

And our view platform one point O had been a game changer, but we are not done our innovation team, which is comprised of various UDR leaders continues to explore and implement a variety of new initiatives that should drive elevated revenue growth and margin expansion in the years to come.

These initiatives are relying on advanced data analytics and include reduced days Baker, better identifying retaining more profitable residents.

Further rationalizing our cost structure, optimizing our price engine and increasing resident satisfaction.

Too early to give specifics we believe these initiatives could potentially dwarf the economic benefits of platform one point out.

We look forward to updating you on our progress as we rollout these value creating initiatives.

Looking ahead, we are excited to close out a stronger than expected 2021 and move onto 2022.

I want to thank my colleagues for their unwavering commitment to changing and improving the way we do business.

Our culture rewards innovation and I'm excited for our next steps as we continue to evolve and succeed.

And now I'll turn the call over to Joe.

Thank you Mike the topics I will cover today include our third quarter results and our improved outlook for full year 2021.

A summary of recent transactions and capital markets activity.

At our balance sheet and liquidity update.

Our third quarter <unk> as adjusted per share of 51 cents achieved the high end of our previously provided guidance range and was supported by strong same store revenue growth and accretive transactions.

For the fourth quarter, our <unk> per share guidance range is 52 to 54 cents.

The two cent per share or 4% sequential increase at the midpoint is driven by our expectation for continued positive sequential same store NOI growth and accretion from recent capital allocation activities.

When combined with our year to date results. This positive momentum supported the increases to our full year 2021 F away and same store guidance ranges.

We now anticipate full year of avoid per share of $2 to $2 a tube with.

With the midpoint, representing a two penny or 1% increase from prior guidance.

This increase is driven by a two penny benefit from it.

A 75 basis point midpoint improvement in same store NOI growth.

A half penny benefit from accretive transaction activity.

Offset by a half penny from increased G&A expense.

Our same store guidance, we are now forecasting full year 2021 revenue growth of positive 1.0% to one 5% with concessions on a cash basis.

And negative 1.0% to negative 0.5% with concessions on a straight line basis.

This difference is primarily due to the residual impact of concessions amortizing during 2021 that were granted in 2020.

Additional guidance details, including sources and uses expectations are.

Are available on attachment 14, and 15 of our supplement.

Next.

Transactions update.

Our gross 2021 acquisition activity.

On pace to total approximately $1 $5 billion.

During the quarter and subsequent to quarter end, we accretively acquired southern communities for $900 million and sold one community for $126 million.

Two of our recently completed acquisitions were sourced from our D C portfolio.

Illustrating the embedded Optionality, we have with these investments.

One of these DCP acquisitions was partially funded through the issuance of O P units, demonstrating our ability to utilize a variety of accretive capital sources.

Most of our 2021 acquisitions have been in markets that are predictive analytics framework identified as desirable.

Nearly all are located proximate to other UDR communities.

All had been match funded with attractively priced sources of capital.

As Mike discussed.

We can generate outsized yield expansion at these communities through our multiple value creation drivers.

Which enhance your one yields as well as future growth.

Please refer to yesterday's release for additional details on our recent transactions.

Moving on.

Our investment grade balance sheet remains liquid and fully capable of funding our capital needs.

Some highlights include.

First during.

During the quarter, we settled approximately 11 4 million shares of common stock under our previously announced forward equity sales agreements for a combined $500 million of proceeds, which we used to exercise completed transactions.

During and subsequent to quarter end, we entered into forward sale agreements for approximately 6 million shares of common stock for a combined $320 million of future expected proceeds.

We anticipate using these funds on accretive acquisitions DCP investments.

Land site opportunities, which we expect to close in the coming quarters.

Second.

We have only $290 million of consolidated debt or less than one 5% of enterprise value scheduled to mature through 2025 after excluding amounts on our credit facilities and our commercial paper program.

Our proactive approach to managing our balance sheet has resulted in the best three year liquidity outlook in the sector.

And the lowest weighted average interest rate amongst the multifamily peer group at two 7%.

Last.

During the quarter, we expanded our credit facility capacity to $1 3 billion from $1 1 billion.

Extended its maturity to January 2026.

<unk> increased our commercial paper capacity to $700 million from $500 million.

We also extended the maturities of our $350 million term loan and $75 million working capital facility to January 2027, and January 2024, respectively.

For each of our credit facility term loan and working capital facility.

We reduced the interest rate spread by five basis points.

As of September 30th our financial leverage was 25% on enterprise value inclusive of joint ventures.

Our liquidity totaled $1 6 billion as measured by our cash and net credit facility capacity and including the future expected proceeds from the settlement of our forward equity sale agreements.

Taken together.

Our balance sheet remains in excellent shape.

Our liquidity position is strong.

Ford sources and uses remain balanced.

And we continue to utilize a variety of capital allocation options to create value.

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 would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the snarky.

He's.

In the interest of time, we ask participants to limit themselves to one question and one follow up one moment. Please while we poll for questions poll for questions.

Thank you. Our first question comes from Nick Joseph with Citigroup. Please proceed with your question.

Thanks I appreciate the commentary on the earn in for 2022 I was hoping you could walk through some of the other building blocks as we look to next year in terms of capturing the current loss police that you discussed occupancy comps other income and normalization of bad debt.

Sure Hey, Nick This is Mike I'll take a first crack at this one and yeah. We did talk a little bit about that earn and just to put in perspective for everybody. This is again one of the highest we've seen and experienced over the last 10 years at call. It two 6% as we end the year and as you know we've been actively working on driving.

Our rent role even higher so as you can see last month, we had around 97 five occupancy were down closer to 97, one today and a lot of that has to do with just driving those those rents and so as you see going forward. We do expect that the rent growth should be about the same if not a little bit better as we go into call. It November.

December and then as we move into next year, we expect a little bit of the same so on the on the rent side feel very confident and then as far as it goes other income we've been driving our initiatives we're back into a place where we're seeing double digit rent growth when it comes to parking as well as our short term furnished program and even things like the <unk>.

<unk> rental spaces are starting to really take off so we expect other income to be a pretty driving factor as we move into 2022, and then just I know we're talking earn it but just to give you an idea of cost control. That's another thing that's high on our mind and something we continue to focus on as we continue.

With our platform. So 2022 is shaping up to be very strong and I would even go as far as to say that it looks like the highest NOI potential I've seen in my 15 year career based on all of the different factors that we have in fact play today.

Thanks, That's very helpful. And then you mentioned the seasonality expectations without being pushed out a few months how have you seen that in terms of demand I think you mentioned towards the end of October where we are today.

Have your expectations over the next few months just as normal seasonality maybe starts to kick in.

Sure, we're starting to see a little bit more of that seasonality at play today and it's really happened over the last couple of weeks.

Again going back to just the the different driving factors other our occupancy should be call. It 97 as we go forward, we feel like we're in a pretty good spot and we can sustain that and again our rent rolls in a very good place. So we think that traffic, while it's coming down slightly a lot of that is due to our own.

One push on our rents today so.

Feel like we have plenty of traffic coming through the door and again, we'll continue to optimize both occupancy and rents moving forward.

Thank you. Our next question is from rich Hightower with Evercore ISI. Please proceed with your question.

Hey, good morning, guys.

I wanted to I wanted to drill down just a second on the occupancy question and maybe just help us understand.

You know maybe the magnitude of the trade offs, where obviously you know you've got a revenue strategy that seeks to maximize rents maybe at the expense of occupancy right now and then you've got some potential move outs as as you know people that have stopped paying rent or having paid rent you know those become revenue producing units at some point hopefully sooner than later.

So just help us understand maybe some of the moving parts.

And as you know as that translates into into revenues for next year.

Sure Rich I'll start I think first the thing I'd point to and something that we've been not only very pleased with but surprised to some degree as our turnover. So the fact that we've had call. It a 1000 less move outs during the quarter and I can tell you October starting to look very similar we think we have probably around 250 last.

Move outs on a year over year basis that allows us to get a little bit more aggressive when it comes to both our renewal increases as well as our market rents. So we do feel like even though occupancy is coming down to some degree we've been able to buck that trend as we push our rents and again as long as that turnover numbers in our.

Favor, we think we can continue to get pretty aggressive on all fronts. So some markets a little different than others, but I'll tell you right now.

They're all kind of compressing in that anywhere from 96, 5% to 97, 5% range across the board.

Hey, rich.

This is.

It's going to be to me first and then Joe will clean me up but.

But you're absolutely right normally during this seasonal period, we would be dropping rents and trying to move that occupancy how burn up.

And it's just the opposite in this window of time and then that's how unique this pricing opportunity is for us the net net benefit to next year, Yeah, we might trade 50 bps on occupancy for a couple of million dollars of pricing power to hold that rent level high as we come into the January 1st quarter.

Type renewal as well as new traffic pattern.

And I think this is a benefit partly in due to the strong economy slash our business, but also the platform and ability to drive more traffic, we have a lot more confidence in the future to drive a lot more traffic to gain that occupancy back at minimal cost.

Yeah.

Hey, Rich lastly, just you had a comment within your question related to non paying residents and the potential vacancy potential there.

To put it in context, where we sit today, because we really don't see it as being a material issue. We've had a lot of success at this point working on the government assistance programs working with our residents trying to get them current so we're down to at this point in time only 250 residents throughout the portfolio that have been long term non payers.

And they are not applying for government assistance and that if we could today, we would work them through the eviction process and so that's less than 50% of our overall occupancy so overtime, a relatively immaterial amount, especially compared to all the government assistance dollars about 20 million that we've been able to get in that $10 million of application and a $3 million that is in process.

With former residence, so a lot more momentum on that front in terms of reducing that a our bad debt reserve and increasing the collections.

Okay, that's great color guys and thanks, Joe for batting cleanup on that one.

I guess, just maybe a broader question on demand I mean, you know right. Now every every metric that you guys mentioned in the prepared comments is you know pretty much off the chart, but as we think about demand.

In 2022, I mean, it is arguable that maybe we're up against tougher comps because of some of the sort of.

No anomalies that exist right now has returned to office multiple cohorts of college Grads, you know people decoupling from mom and Dad's basement. I mean is there something unique about 2020, one that's not gonna be replicated in 2020 two as far as just underlying demand in your portfolio.

Yeah Rich it's Joe.

Maybe starting off with kind of the most unique number that is out there that supports the Ford case for additional pricing power. When you look at our rent to income ratios relative to pre COVID-19. They have not moved so we've seen wages throughout our portfolio go up by approximately 7% our market rents are up by roughly 7% versus pre COVID-19. So the <unk>.

<unk> today is no worse off sitting in our multifamily communities than they were pre COVID-19.

You mentioned in a couple of the tailwind on the demographic side clearly a very strong household formation, we have a different immigration policy in place today than we did over the last four years.

When you look at the decoupling piece still a lot of individuals' and roommate situations and living at home.

When you get to the income and balance sheet side.

The biggest driver of rents in our markets has always been the ability to increase income and we are seeing incomes go up we see much better balance sheets individuals' with much better cash position. So I think the wherewithal to pay as much better.

The relative affordability piece.

That's a huge driver too and we feel very good about our business, but single family ownership and rental has been doing extremely well over the last two years, but when you look at renter ship affordability relative to single family, It's actually got about 15% cheaper relative to pre COVID-19 and so the value proposition is much better for renters today, which obviously helps.

Keep the back door closed as well as keeping individuals coming into the front door. So net net feel very good about the demand environment going.

Going forward over the next 12 months and Thats already when we have that loss to lease that Mike mentioned of low teens that we can already start to earn in on build off of.

Rich one thing I would add this to me.

Unique this cycle inflation.

Broad based inflation has been something we haven't seen in America and a couple of decades in my view.

At this level.

And.

I think it's making a significant difference not just in asset pricing, but throughout the business.

All businesses, but most of all and most importantly, its probably causing wages to increase dramatically.

Thank you. Our next question comes from Rich Hill with Morgan Stanley. Please proceed with your question Hey, Good morning, guys. I appreciate some of the disclosure in the prepared remarks about rental assistance I was hoping you could drill down a little bit more and maybe help us understand what was included in.

Dollars in three Q and if anything's are included in the guide for <unk> for the full year. What I'm also trying to get at is sort of what is a clean same store revenue number look like as we think about what that might look like in 2022.

Yeah Rich this is Joe so.

I tried to give you a couple more stats on that.

Of the $20 million that we referred to as being collected on behalf of our residents approximately half of that came through in <unk>.

So you had you know over the last 30 days, probably another $3 million or so and then the rest of that would've been in <unk>. So those are the kind of stats in terms of what's embedded in those numbers.

Clearly, it's been beneficial in terms of see them come down the reserve come down a little bit CNR collections in the quarter and after quarter come up.

In terms of a clean number for <unk>.

Yeah, we do expect a continuous continuing so the trajectory of where we're seeing our ability to get to 98% or so collected is proven out you know when you look in the press release in the footnotes.

Yeah, we've been able to get to 98% for past quarters about 90 to 120 days. After we think that holds as we go into <unk>. So the implied revenue guidance. If we're looking at probably 8% cash revenue in <unk> and about 5% straight line revenue that factors in that collection percentage.

That's very helpful. Joe This is exactly what I was looking for.

Just a question on the leasing spreads for a second.

Note that you that it was mid to high teens for new leases.

If met if new leases are there.

Why can't you push renewals, even even more so than and you are right. Now is there any reason that those can't trend closer to where were new leases are in time.

That's a great question rich and part of that has to do with the regulatory environment. So we still have about 15% of our NOI that is capped and so we just can't go out there with anything higher than call. It zero to 1% in most cases, so that has something to do with it and then I would tell you that the way that we do our pricing is we're looking about 75 days in advance.

And market rents move so quickly that we just never could have guessed that they were going to go that high that being said as you go into call. It November December were starting to see those double digit renewal increases start to show up so we feel like we're in a pretty good place to capture more of it going forward and actually see more of a compression between new and renewals.

Thank you. Our next question comes from Brad Heffern with RBC capital markets. Please proceed with your question.

Yeah, Hey, everyone, maybe for Joe just a follow on to the rent income conversation I would imagine that there are a lot of regional differences, there, whereas whereas the average maybe hasn't changed but you have a market like Tampa, where you have 25% increase in new lease growth.

I guess, how do you see a market like that behaving in 2022 where I would imagine that rent income has two degraded over time.

Yeah, Mike can take the some of the rent to income specific some of the outliers within our markets.

As you've seen in Tampa has been absolutely phenomenal market for us and it's one that we identified back in 2019 and since then from a portfolio strategy perspective, we have been looking to grow.

We've grown that portfolio, thereby a couple hundred basis points in terms of percentage of NOI, just through acquisitions as well as development in the last several years in a market that continues to screen well for us today on the Quant side.

Actually on the supply side Tampa is one of the few Sun belt markets, where we think supply actually looks better as we go into 'twenty, two and 'twenty three given our past permit activity.

The current pipeline expectation, so still feeling very good about Tampa.

You can go through a little bit on the rental income side.

Yeah, I would tell you that Tampa today actually feels pretty good as it compares to maybe 2019. It is slightly elevated but it's still in that 22% to 23% range and a lot of that has to do with some of the wage growth that we're seeing within that market. So we're actually seeing over just in the last call. It trailing three trailing 12 months about <unk>.

Percent to 9% wage growth so that's helping to offset all of the increases we're seeing in rents.

Okay got it thanks.

And then just more broadly on sunbelt versus coastal can you talk about if there are any notable differences in terms of the leasing trends youre seeing in either one.

Sure Yeah, let me give you a little color there.

Relates to coastal versus Sunbelt, just to put in perspective first coastal exposure for us it's about 75% of our NOI I'd tell you during the quarter, we did see occupancy of about 97, 3% and blended growth of about seven 1%.

As it compares to the Sunbelt, obviously, that's about 25% of our NOI, we're running closer to 98% occupancy and our blended growth was right around 11, 5% to 12%. So we did see more growth in the sunbelt, but I would tell you when it when you look at A's versus B's and even urban versus suburban.

We are seeing that compression across the board.

I think another one to note is what we're experiencing with urban versus suburban today and just to put it in context again urban exposure is about 30% of our NOI and during the quarter. We had occupancy of 97, one blended growth of about seven 6% and that compares to our suburban portfolio, which ran closer to 97 seven.

Occupancy and blends were around eight 5%. So we're definitely seeing a compression across the board.

I think Brad you know, we're still going through the preliminary budgeting processes. We're looking at 'twenty. Two obviously, we're far enough along at this point that Mike can give you a pretty convicted statement earlier that this will be the best year next year and his 15 years of managing ops here. So yes, we still feel very good about next year, but I think when we look at them.

Yes, it would be a coastal sunbelt east west they are all converging relatively similar bunched up revenue growth number on a year over year basis. So we don't see any big outliers for the most part next year at least from a.

<unk> perspective by region.

Thank you. Our next question comes from Ken Kenny loose from with Goldman Sachs. Please proceed with your question.

Hi, This is John Alicia Thank you for taking my question.

My first question would be around just understanding you know you talked about this broad based inflation environment, but as we think about direct the questions here in terms of you know not just inflation, but also supply chain headwinds across all.

All channels with the economy, how do you think that is impacting you know use that you are.

Underwriting say 40, our DCP program or for your acquisitions I mean, how do you think this broader inflationary environment and supply chain headwinds or.

Are impacting the business.

Hey, Jon it's Joe So I'll start that off and then maybe Harry can kind of dive into the development side as well, how we're thinking about that related to current and future development pipeline, but I think as Tom mentioned earlier, one of the benefits of being in the multifamily spaces. We are an inflation hedge so as we see wage inflation come through as we see broader.

For inflation come through 12 months leases, we should be in a really good position to continue to drive for the top line and then might kind of talked a little bit on the expense side too in terms of what we're trying to do we have.

50, plus initiatives at this point in time, they are both focused on topline and bottomline.

Beyond platform one point, though.

Drive additional rent additional income as well as constraint expenses and so we are trying to continue to get ahead of that and differentiate.

As we have done in the past in terms of controllable expenses and expanding that margin.

On the asset value side, Tom mentioned earlier and a very good place given the wall of capital in terms of for depreciation for the assets that we own.

From a balance sheet perspective to the extent that you believe.

The rate expectations are driven both by nominal and real growth you would expect potentially some pressure on the long end at some point in time, but given the proactive liability management that we've had for the last three years, we really don't have any debt coming due for the next three years and we have minimal floating so we don't really see any pressure on the business from the financing perspective, Lastly, just turn it to <unk>.

Harry.

Can I take you through a little bit on the development pipeline what were seeing on the supply side there.

Terms of the channels sure. So as you think about our existing development pipeline just start with that are those projects that are under construction, we have fixed price contracts with the general contractors. So there is no price issue there.

If you think about it we should benefit from inflationary environment in terms of rents with with fixed price cost numbers on the existing development pipeline.

As we look forward, our hard costs, probably up on average 10%.

Cereals were up 10% to 15%.

Lumber Thompson copper gypsum products.

P. B C are all up significantly and there's a lot of volatility in the markets those were pricing new projects. The subcontractor base is is pricing in that risk until they can lock down material pricing.

To provide context.

It's hard costs are up 10% at 6% to 7% of all living cost increase.

The rents were also up in most of these markets. So 100 to 125 dollar type rent increase that will neutralize that price increase so as we think about the viability of projects going forward.

I'm very optimistic about our development pipeline looking forward.

I do think too on the developed pipeline one thing dimension as you look at our next restarts and I think they all have pretty unique attributes in terms of we've talked a lot on the acquisition side about the deal next door, but.

But we have another phase down in Dallas with the Trubion Morbid townhome style product that's on existing land, we have a densification play out Northern Virginia Tech in 30 units offline and putting up almost 400 units. So again, a densification play an adjacent to existing product and then in Tampa, We have a project there that's going to be going up right down the street.

From one of our purchases from several years ago. So all of these have platform or legacy land as well so that helps from a yield perspective.

Great and then as a follow up you took down your <unk> guidance for the year by $20 million. So could you talk about what are the DCP opportunity that you're seeing right now and how hard you know yields and instead of having the volume change there. Thank you.

This is Andrew Kantor year to date, we've closed on three new DCP deals and acquired two of the historical deals.

We continue to underwrite numerous transactions that meet both our market and our underwriting standards.

At this time there we are seeing additional competition, we're working on several additional underwritings right now and hope to have some additional transactions to announce in the near future.

And then just John in terms of the guidance commentary there in terms of it coming down $20 million.

On attachment 11 day.

One of the subsequent transactions that we announced is the purchase out of the D. C for a portfolio of assets down in Orlando. So if you're looking at 11, you can see that outstanding balance was roughly $18 million at quarter end. So it's really the payoff of that which brought down our DCP investment guidance by $20 million. So that's really the driver.

Not that we're seeing fewer transactions available in the marketplace for us to invest them.

Thank you. Our next question is from Amanda Sweitzer with Baird. Please proceed with your question.

Thanks, Good morning wanted to follow up on D. C. P. Could you talk about your current D. C. P balance and do you expect to see greater early redemptions within the desking tool and maybe developers seeks out Joe liquidity events today.

Yeah, No. That's a good question, we do have when.

When you look on 11 b within the supplemental a number of transactions that are coming up with one year to maturity I will say wanted to call out specifically when you look at 1200 Broadway there in Nashville, a balance of approximately $60 million just over 12% press return.

The maturity of the year out they do have the ability to pay off starting in January and so we do think that well likely see it pay off earlier next year.

Given the robustness of that transaction market and the value that's been created on that deal. So that's one that could be paid off earlier in the year that from.

From an earnings perspective.

It's a little bit of a hiccup might be in first quarter second quarter, but as Andrew mentioned, we are very active in terms of trying to backfill the pipeline and not just backfill, but really grow from the plus or minus 350 million a day, we'd like to get up into the Florida $400 million to $500 million pipeline, because one the economics to the cycle in terms of a good time to be doing those but really three.

As you saw on demonstration this quarter the ability to get at some of these assets. We've had about a 50 50 track record on being able to buy out of this.

Piece of the business and ethics that I mentioned earlier, Great example of that when you look at and going yield.

That's about a four six and go into yield to us that was really a win win for us and the developer given that we have a lock out there and allowed them to get access to liquidity. They were able to take LP units from us in that transaction.

And get a very strong IRR for their investors and were able to buy it at a point in time when no. One else is able to given the lockout. So that four six that we're getting in year. One is definitely an above market yield and so the more of those that we can do obviously the better for our investors.

That's helpful and makes sense.

And then you've talked recently about some of the positive migration trends that you've seen with the hardest hit urban areas can you quantify where that migration I mean from at all are you seeing people predominantly move back from the suburbs or are you seeing migration from different metro areas.

Hey Man, it's Mike So let me, let me back up I'll give you a little color on what we're seeing both in our move ins move outs first of all move outs in general move outs from <unk> 'twenty. One showed more former residents staying within their metro areas and it's really in line with pre Covid stats.

As it relates to move ins I'll tell you first and foremost a lack of move ins needed in <unk> with turnover far lower than both 2019 and 2020, there's a little bit of a surprise, but again overall, we're seeing a slight reversal of the trends in 2020 and about 40% of move ins came from outside of the MSA first 23%.

Last year, a couple of examples New York today's around 45% versus 11% last year, San Francisco, 37% versus 10% last year, and then Boston is around 36% versus 18% last year. So again, we are seeing more people migrate back into those areas.

Thank you. Our next question is from John Pawlowski with Green Street. Please proceed with your question.

Hey, Thanks for the time I wanted to go back to the loss to lease conversation just so I get a better sense for how much growth will come 2022 versus 2023, so Mike or Joe at what percentage of leases either for regulatory issues or just from the sticker shock of a massive increase what percentage of the leases will be brought to you.

Market.

And kind of a first year versus a two step process.

And where do you break it down on the regulatory side, John you have 15% that Mike mentioned that have rent freeze is in place. In addition, when you go to markets such as California, where you have <unk> 82, which is CPI plus five.

About 20% of our overall NOI all of that within California, and Oregon, you have CPI, plus 7% or two there that's cap and then they're still as the business decision if someone's 15% on a market. We may not move them to 15% you may move on to 10% because of the cost of the turn in terms of downtime and the R&M.

Expense, you've got to factor that in so there's a business or a bottom line cash flow decision too. So yes, youre right. Some of this could play out over a year or two we would hope to do as much as we can in terms of driving.

Bottomline results here in next year, but some will probably take a couple of years because of those issues.

Okay, and then Mike I believe you mentioned renewal increases being sent out today are double digits could you just give us that kind of a specific average rental rate on renewals you're sending out.

Okay.

Sorry, then specific growth rate.

[laughter] guidance number.

I'll take dig into my pocket here for some pretty big details there Jon but I think that's right now what we're seeing is.

I would say low double digits across the board and I think it's a different aspect. When you go by markets. Obviously in a place like New York, where we were high on concessions at this time last year. It will be on an effective basis, but on a gross basis, it's closer to call. It 2% to 3%. So we're capturing a lot of that concession back as people.

Stay and then when you get to the Sunbelt that is more of a fundamental driving market rents and still seeing call it 10% to 12% growth on renewals and places like that.

Okay great.

Great. Thank you very much.

Okay.

Thank you. Our next question comes from Juan Sanabria with BMO capital markets. Please proceed with your question.

Hi, good morning, Thanks for the time, just just curious on how you see rental rate growth across the markets.

In in 'twenty, two kind of talked about Cigna.

Significant wage growth in Tampa.

But just to play Devil's advocate for you I mean do you think you can actually get high single digit rent growth.

And is that predicated on a view of what wage inflation is doing.

Hey, Juan it's Joe so.

We're going to back up a little bit here, because we're going to have a lot more commentary on that in three months when we get into guidance right now we're going through those preliminary budgets and trying to run them through both our top down and bottom up processes to figure out where we think revenue should shake out as well as the rent growth that drives that revenue.

What we did say earlier was I think on a year over year revenue growth.

We are landing pretty similar by region, but I think we're going to hold off in terms of getting into what's the underlying rent growth assumptions that drive that.

Just kind of keep it at that high level for now.

Fair enough.

And then just on the regulatory restrictions on our rent increases to in place customers is there a way to quantify what.

Your same store revenue would have been had those restrictions not being in place.

Overall, we said it.

Between all of the regulatory restrictions, meaning our inability in some cases to collect rents and revert back to a normal period of collections and delinquency.

The impacts of other income have historically had on us and of course, the renewal increases and we've kind of said $6 million to $8 million seems to be the dollars that have been impaired that hopefully over time, we're able to recapture.

Six of that is roughly related to the collections piece of running around 98%. The other several million has to do with the renewal increases.

Thank you.

Okay.

Thank you. Our next question is from Austin worst met with Keybanc capital markets. Please proceed with your question.

Hey, good morning, everybody. Thank you.

So you know hitting ones question, a little bit differently, you have talked about the converging trends between markets next year and demand certainly has driven strong stronger increases in the sunbelt and I'm sure that there is an above average mark to market there, but has the dynamic in your view change between sunbelt in coastal markets as far as wage growth.

Looking forward were coastal has historically been stronger do you think that will still be the case or does that converge as well.

And I think over the longer term when.

When we look at it from a four to 10 year perspective, there is likely to be a little bit more convergence there, meaning that if historically San Francisco had a monopoly on tech oriented jobs in the high income associated with those if New York had a monopoly on the finance jobs in the world.

We think that while those two remained hubs of that activity on the margin. If you think about the rate of change.

Maybe they lose a little bit and so you do see more of these satellite offices.

The whole scale remote work from anywhere really is somewhat immaterial, but as you do have some of these remote offices.

Locations in sunbelt or other coastal cities.

You do see a spreading out of the income likely over the next four to 10 years, which maybe.

Maybe levels, the playing field a little bit.

For some of the Sunbelt markets.

But at this point in time, you're also seeing a lot of capital flow into those markets, which is good from an asset value perspective, but when you look at supply environment.

Supply is going to be up for the Sunbelt next year I think 23 is almost honestly when you start to see more of that divergence is a lot of the permitting activity that we saw back.

During 2020 in early part of 'twenty, one where sunbelt just kind of powered through and the coastal markets pulled back you start to see those deliveries in 'twenty three and so.

Probably more of a headwind in 'twenty three from a supply perspective relative to the coast.

No. That's that's helpful color. Thanks, and then another one for you Joe.

Did over equities the acquisitions here before and you've highlighted the focus on maybe bringing bringing leverage down a bit but at what point do you think you'll fund future investments on a more balanced basis between debt and equity.

Yeah, It's a great question and I'll start on this one we've been actually discussing quite a bit internally, we're going to be discussing a little bit with our board in the next several days as you mentioned, we have been trying to fully equities are our external growth efforts over the last year. What that's done for us is bring debt to EBITDA down another point or 2.1 0.2 times.

At the expense of call it percent of earnings growth that we could have otherwise seen and so the discussion that we're having now is we feel very very good about the trajectory of EBITDA feel very good about the incremental NOI <unk>, we're receiving from our external growth and we feel very good about the path that we've laid out in terms of we think we'll be at a six five times debt to EBITDA by year end <unk>.

Or to low six was high fives by year end next year, and so feel very good on the balance sheet side, given all the work that we've done there. So we are getting closer to being able to fund it in a leverage neutral manner I think on a go forward basis as we continue to hopefully find accretive opportunities to deploy into but yes, it's still up for discussion and something were.

Wrestling with right now.

Great. Thank you very much.

Thank you. Our next question comes from Rich Anderson with <unk>. Please proceed with your question Hey, Thanks. Good morning, everyone. So I just want to isolate on one commentary early on the call I think you said high teens new lease rate growth.

Is how the math works for the fourth quarter.

And and.

Part of that is concessions burning off.

And that will that will.

Last forever, obviously, that's when you calculate the year over year growth.

That becomes a declining factor.

As things settle.

Honestly, you have wages and a strong economy and you know people rushing to get back near their offices and schools, but all of that stuff a year from now will kind of be a wash in the year over year growth calculation. So my question is what's the repeatability of that.

Jump on that topic again of this strong.

Fundamental picture Youre, obviously, not going to say that youre into high teens, new lease rate growth forever. So does.

Does this environment.

Taking out the concession element in this stuff that's not repeatable figure to be more of like a single digit type of growth still very strong, but not not fair to call. This beautiful correct.

Yeah, I don't know at this point rich, it's something we've been discussing a lot because I'll say as we look at the first half of next year.

Really high degree of conviction that our numbers are going to be pretty fantastic in terms of running from <unk> of this year into the first part of next year, given that earn in and that loss to lease a lot of the discussion we're having as to what does the second half look like because it depends a lot on your question there.

There's attributes that when you say, it's going to be a wash or it can't be repeatable there are aspects to it that could continue to support our efforts in terms of supply really doesn't pick up all that much next year, it's probably up 10% or so in our markets, which is around one 7% of stock the coast Youre looking down around the 1% range in the Sun belt, you're kind of.

3% to 4% range.

So supply is not going to be a big headwind for US next year I think that relative affordability piece still exists next year in terms of single family versus multifamily and the value proposition that exists there and I think when you look at the amount of job openings exist in the market today.

And the fact that that is driving a substantial amount of wage inflation that should drive above average wages and therefore above average rental rate growth. So it kind of remains to be seen between you know could it be up in the mid teens again.

By the time, we get to second half of next year there'll be a phenomenal outcome for us.

It would be an outlier, where probably revert them back a little bit, but still a lot of good tailwind behind us rich, it's Tim a couple of other factors and listening to your commentary in Joe's don't forget I mean, we still have a lot of markets that are COVID-19 impacted either on a regulatory or business is opening up.

<unk>.

And if those slide into the second quarter.

Next year, we should be able to go to full pricing power on those markets and then right now we can't contemplate or see that but it sure feels like the pressure is going to amount to open up those cities bring the entire workforce back into the office and lift restrictions and regulatory.

Type environment, and if that were to occur.

That would be a very powerful tool towards the second half of next year and while a lot of people are talking about the first of the year I find politicians go to sleep at the first of the year and don't wake up until February and March.

And.

So we will see how that plays out but that's a big factor if you will in our.

Looking at 'twenty, two and how we might guide for that okay.

Okay and then second question is.

This is all great but.

In this environment, because you can't everyone, everyone can't win and I'm wondering if what's happening to high end multifamily like that which you own and the clientele that you have.

As residents who have the money to afford.

But are you exposing and our qualities in the country, whereby the people that can't afford it.

That probably has a long term negative consequences likes which you've seen I guess you could say in San Francisco as of late is there a risk that you come out of here.

A pretty substantial hangover and how do we avoid that.

Yeah, Rich I'll stay away from the societal questions and leave that to people to have a bigger paycheck than I do to solve but youll see from our balanced in how we've constructed our portfolio. We have a high exposure to a b type portfolio in a number of markets as well as <unk>.

So, yes people will repriced himself down into more of a mid market type products.

And they'll double up and Thats the activity that we would anticipate if we pushed too hard we will be sensitive to that I mean, we make a lot of money off of renewals and keeping our days vacant down.

And if you think about our business model. It really is simple we got $21 million available rental days, how many of them do we keep people in apartments paying us rent.

And so I won't venture back to your question directly.

But I think as positioned as a company, we benefit from up cycles and down cycles.

And we will always construct yourself in that manner.

Doubling up responses.

Attacks the question pretty well actually thanks very much.

Thank you. Our next question is from Neil Malkin with capital one securities.

With your question.

Hey, good morning, everyone.

First question I forget if you you said this in your prepared remarks, Tom or it was in the.

Commentary from the press release last night, you talked about.

And I'd say share demand for marketing strength in various next Gen initiatives. You also talked about opening up the <unk>.

Tunnel next.

With regard to the next Gen platform.

<unk>.

I don't know Mike or Joe.

Could you maybe elaborate on what you mean by that and the kind of at least maybe near term initiatives or things that you're doing.

To drive that.

Yeah.

The leasing traffic at such a impressive level.

Yes, Neal, it's Mike I'll kick it off and first really good question really appreciate it.

We are very pleased first and foremost we've officially rolled out all of our markets across the portfolio in terms of platform one point al.

I think you've heard us talk before we definitely have a culture of innovation and a track record of execution. So we've done a really good job.

Putting that behind us and I would tell you. We're more excited about what's to come and you've heard us talk a little bit about today on the call. Joe mentioned that we had 50 initiatives that we're currently working on we're constantly looking at different ways of improving the business and while we're looking at those things were really focused on some of the big banks and Tom just mentioned one of the bigger ones.

Not a new concept necessary as it relates to vacant days.

He mentioned, we do have around 2000 $21 million Bacon days.

Renewable days and if you think about it 3% vacancy on that is about 600000 homes, where you have opportunity. Our average daily rent is about $70. A day. So when you think about it that's $42 million are not going to capture it all but we do feel that we can improve our process, whether it's on the turn time.

Moving people in faster, there's a lot of opportunity there.

On opening the funnel and improving our pricing strategy.

Over the last year or so we've done the heat maps, that's created about $6 million in value for us and we feel that theres more things to come on that front, we'd like to think about in terms of creating more buyers versus shoppers. How we how we utilize that demand how do we get into our pricing team faster and leverage our website. So we are starting to open up that.

Funnel, we're seeing in traffic and we're seeing pricing power and I'd say, probably last but not least continuing to work on the cost side of the house and being more efficient as it relates to using bots.

Artificial intelligence things like that and ultimately what youre going to continue to see US do is utilize our data analytics can be.

Excuse me capability to continue to innovate we have a lot of opportunity with the data that were capturing today, whether it's with our consultants that were working with or whether it's with our own internal guys that we have crunching data today, so a lot of opportunity to come.

Give a couple stats so.

Everyone's heard us talk about our 97% self touring.

But in terms of what that does in terms of the average to our time and then how many more tours, we cannot take a day.

Go through some of those stats because those are helpful. In terms of how much more traffic can you drive to that community on a daily basis.

Yeah, we use some examples in the past where typically one of our leasing agents. If you will could could see upwards of six to eight people on a day because the average time that it takes for somebody to tour. It's about an hour now we're seeing that about 3% to four X that they can send three or four people out at the same time and manage all of this.

While having them go out there and it typically takes about 20 minutes for somebody to tour our property versus at 60 minutes on average so we're able to maximize our people's time and energy and we're starting to see more efficiencies not only at the property side of the house, but also here in our office, where we have a centralized team.

That are able to work more apartment homes at any given time.

This is to me I always love piling on this one because it's just so much fun to think about it and you go down and you buy a car.

And the salesman just keeps talking to you and talking to your to the point that you just want to say just get out of my way.

And Thats really what we were doing to our customer we were taking them on a one hour expedition and the truth is it turns out they really want 20 minutes, they've already figured out a lot of things and they don't want us in the room when theyre talking about their decision.

And where they want to live they actually just want to buy.

And we've been trying to sell and convince them that that one hour is valuable and the truth is I have said 20 minutes I can make up my mind.

So this is about making the benefit for our customer, making it easier to do business with us and I don't know any business on this planet right now that's not trying to do the same thing make it easier on the customer to transact with you and the funnel becomes bigger for US we can push more traffic.

That does as we create an open dialogue towards the resident that says 10 people looked at that apartment today.

You need to buy at this price on this date or we're going to the next one.

And our pricing engines are built off of no forecasting but has solved for occupancy their first generation pricing engines.

The next ones will be much more data driven.

And if you will a buy decision not a sale decision.

And Thats just the power of what we're looking at now we have control of the data.

We have a broad enough set of facts that we can actually generate a different pricing concept and scheme.

At work all the time no.

Work in the vast majority.

Certainly.

I think that's kind of one example, the days vacant another and yes. The innovation team has a list of 50 different projects and I'm expecting a hell of a lot out of them not just small ideas like we've done in the past.

And but big ideas.

Sorry to get on my Soapbox, but I really loved the topic.

Yeah.

No I appreciate I think everyone on the call appreciate it.

I'll hop back in glass and how far you added.

I had you guys are of the pack so.

Kudos to that.

Other one for me is for Mr. Van Ens.

Sitting there quietly.

I imagine sitting.

<unk>.

Can you just talk about.

The you know how you guys are thinking about or handling.

The coastal market.

Tori uncertainty or just the restrictions and by that I mean.

Seattle lifted the renewal increase I believe moratorium, but the mere extended the eviction through the end of the year do you see something similar in New York.

Extended our addiction due at the end of the year I think California's I think fairly open now so can you just maybe talk.

Talk about how you see those things playing out near term and what your kind of strategy and policy is around that and then.

Maybe if I'm Lucky you can tell me you know how you guys think about or if you're worried about this whole idea of vaccine mandate potentially impacting large swathes of the police and fire departments and some of these cities.

Sure Neal so little bit to impact there.

Listen we continue to handle it exactly as we have been we've been facing these eviction moratoriums renewal rent increase limitations.

Do you have other COVID-19 restrictions from last year, and a half and a lot of these coastal markets. So it hasnt really changed our operating philosophy, I think where youre seeing a difference now is just in somebody's bridge moratorium markets. So when you look at.

State of Washington For example, California et cetera, we.

We still do have plenty of restrictions for sure over the next two to three months.

So as complex as went the original regulatory environment was <unk>.

And are the programs that obviously, we've been participating in for rental assistance.

But we're working through it on a day to day basis, we have a team as you know thats dedicated here.

Kudos to Dave.

David and Camille.

You've done a fast fantastic job with keeping all of us.

Just didn't know with what's happening out there so that might can adjust operating strategy, we needs to as far as whats going to happen going forward I mean, it's a little bit difficult to say I mean.

Yeah.

GE is going into this year, we would have thought that we would have already been through most of the regulatory stuff right now as Tom said some of these things are going to bleed into at least mid year next year.

Whether thats some of the eviction moratoriums that continuing to get extended.

We still face those in New York, Seattle proper you mentioned, Boston proper, New Jersey under 80% AMRI and then to a certain extent in D C.

Whether it's other restrictions that we're going to face, we'll just have to see but we're going to continue to work on them and then I don't know if Joe has any thoughts on.

Vaccine mandates.

That's fine.

As far as.

Police forces and all that kind of stuff, but I.

I guess, we'll just we'll just have to see what happens there I mean, we don't want to get into the into the politics of anything like that and so we'll be monitoring it just like you are.

Thank you. Our next question is from Joshua <unk> with Bank of America. Please proceed with your question.

Yeah, Hey, everyone hope everyone's doing well.

Wanted to focus in on the non controllable operating expenses in particular real estate taxes.

Any early kind of indication on maybe how those are going to trend going forward I noticed rising real estate prices. It feels like maybe municipalities might take advantage of that.

Yeah, Hey, Josh it's Joe.

Putting together those budgets at this point in time and working with third party consultants throughout our different markets.

I'd say at this point in time preliminary view is that throughout the portfolio, we're probably a plus or minus 4% to 5% overall growth next year, you have California at the low end of that at 2%.

North east looks to be a little bit lower where we don't have any exemptions in place places that we do have some of the exemption burn offs might put a little pressure on some of the asset specific numbers, but overall northeast a little bit lighter where.

Where we see more risk today, a market like Austin some of our Florida markets. So generally speaking little bit more pressure on the sunbelt. So youre kind of low end, 2% high end in the sunbelt, probably six or 7%, but blend into that four 5% based off of what we see today.

And today I think we have 30 or 40% visibility into overall real estate taxes for next year. So we do have some insights into that at this point.

Okay.

Helpful and then.

Maybe just wanted to touch base on some of your opening comments about collecting AR.

Prior rent that you wrote off as bad debt expense.

It's driving your success, there and maybe what's the opportunity set that New York program you mentioned.

Yeah.

I think in terms of what's driving the success.

Really goes back to the innovative mindset that Mike talked about in terms of I think we've had a history of picking up patterns items that take a lot of work rolling up the sleeves and going after what are sometimes considered immaterial dollar amounts, but when you spread them over 55000 units they really start to add up and so you.

Put in the task force in place probably what was the eight or nine months ago now to really go after this opportunity getting a pretty good jump on it making sure we have the resources available than.

And then making sure we have the communication with the residents. It has been a constant dialogue on a constant effort both with current residents as well as former residents to make sure. They understand what the resources are available to them. Both from government assistance, but also our own willingness to work with them and try to get them through this time. So I think it just comes back to putting the resources to it.

And that's what allowed us to get a head start I think on.

The rest of the market in terms of being out there on the collection side in terms of the former resident opportunity, California, and Washington are really the two big ones today that are up and running.

Today, we think of $3 million or so that have been received or an application.

That's out of roughly $14 million overall.

Our balance related to those two markets from the covered period.

New York really hasn't got off the ground, yet and I believe it is a lower dollar amount I think the allocated $125 million to that program, so a little bit less of an opportunity there.

And honestly less of an AR balance associated with that market. So hopefully over time, we see continued momentum there and hopefully we see some of these other markets utilize some of their excess capacity from the current current resident program and reallocate some of it to the former resident programs to help them as well.

Thank you. Our next question comes from Hendel St Juste with Mizuho. Please proceed with your question.

Hey, there thank you.

A couple of quick ones from me.

First on the acquisition cloud, obviously, you guys have been stepping up your activity there, notably in the mid Atlantic where it looks like you sourced.

Have a little bit more than half of your volume of the $900 million. So I guess I'm curious first on that.

Well the cap rates the IRS youre underwriting and then more broadly a question on the opportunity set let's say Metlife and a few years since you guys did the asset swap between 2018.

Assets left there curious on the opportunity there your level of interest or any any any conversations. Thanks.

Okay.

Joe.

Maybe start at a high level in terms of the market selection I would say, we kind of have three tiers of conviction within our broad process met in.

We have conviction in terms of our market selection through the portfolio strategy process high degree of conviction in terms of our transaction teams ability to identify assets that fit well with our platform and thirdly really high degree of conviction in terms of our ability to operate and outperform with a deal next door and so when you look throughout the assets that we've been acquiring and we started at a high level.

And we have maybe a third of our markets in a given time, but we would say are by orientation and so the markets that you're seeing on here in terms of the buys typically represent those D C. Baltimore Philly all the Tampa and Dallas work that we've done this year. So it started that level, but then it's really getting into the weeds and trying to identify can you find it.

Next door, where you have greater scalability and greater efficiencies of head count.

And then can you layer on a lot of the operational upside the core blocking and tackling initiatives put it in our capital program in some cases overlay in the platform and so that's.

That's really how we kind of approach it.

In terms of the yield an IRR that you referenced typically we've been in the mid fours type of range.

That's a year one unlevered <unk> yield so prior to management fee prior to Capex and so typically mid fours and that's married up with our cost of capital that's been low fours to high threes. So that's where some of the initial accretion comes Ramadan. These assets always have additional upside in years, two and three to keep expanding that margin.

Lastly, you just asked about met really no updates there continue to be a fantastic partner for US we did shrink.

The portfolio there are a couple of years ago and had a win win.

We executed with them.

But you see it in the presentation that momentum starting to come back in that portfolio.

We will put more urban a little bit more of a less.

So seeing good momentum in that portfolio when you look on attachment 11.

Yes, yes.

Political and I appreciate the color there.

You guys just provided.

A bunch of couple of stats on the coastal versus sunbelt urban versus suburban.

Can you guys discuss rent to income levels and some of those regions, how you're feeling there your ability to push pricing given especially some that we've seen I think rents you mentioned being up 20 blended lease rates up 20% over the past year or so maybe some color on rent income.

Just thoughts on that.

Relative pricing power amongst the regions. Thanks.

Sure Handouts Mike.

I'll tell you for the most part is pretty consistent across the board. We have a couple of markets that are outliers.

Monterey Peninsula for US has always been the one market that runs a little bit higher and even even with that stat. It's about 25, 26%. So it's still still well below that 30% threshold that we watch and then you have other places like Austin, Baltimore, and even Philadelphia in Portland for Us sub.

'twenty they are around 17, 18%.

Average rent to income ratio, so again as a whole were right around that 20% to 21% and it's very consistent with what we've experienced over the last couple of years.

Helpful. Thanks, guys.

Thank you.

Thank you. Our next question is from Daniel Santos with Piper Sandler. Please proceed with your question.

Hey, good afternoon, thanks for sticking around and taking all the questions.

My first question is I was wondering if you could comment specifically on your thoughts on the potential for good cause eviction legislation in New York and what that.

Due to your views on whether or not you want to sell down exposure.

And if it is.

The fact is effective rent controls implemented would you expect any sort of savings on property taxes.

Yeah. Good question and it is something that definitely isn't new to us and the regulatory team. It's item they have been tracking in that market. Most of the legislative sessions at this point have shut down for the year and so as they fire back up in 2022.

We do expect in New York, specifically that you're referring to as well some of the other resident friendly markets will have a series of.

Rental oriented topics that there'll be debating and discussing so it's something that we are keeping an eye on and from operational perspective, we'll be ready for in terms of the implementation of that and how we operate.

It is definitely a factor, though in terms of when you referenced by himself.

A lot of our work hinges on our predictive analytics platform, but we do have a qualitative overlay and regulatory is one of those key factors that we look at.

Obviously, a market like New York or L, a or San Francisco does not screen well on that factor but.

We do have a number of different factors, we got to juggle when making this decision that's no different than looking at climate change down in South Florida is no different than looking at the big supply picture that we see in Austin, and Nashville, and others factors in every market that we have to mash them altogether and figure out what's the best potential outcome on a go forward basis. So it does play into.

Our thinking but.

It's not going to cause us to now.

Certainly sell down.

But it does definitely continue to drive forward the value creation piece of why do we want to be a diversified platform clearly for reasons, such as us demand supply regulatory that can all get.

Out of whack at certain different points in the market cycle. So being diversified clearly is the right path for us to stay on.

Perfect. That's helpful. And then one last one for me and sorry, if you already covered it it's been a long call how much more benefit are you expecting from smart rent.

What might be the timing there I assume that there are some sort of lockups and you're exiting would be synchronized with your partners.

Yeah. Good question. So we've got a couple of items that you can kind of look super referenced within the supplemental primarily on attachment. One we do have a footnote in there down at the bottom footnote three that refers to what the unrealized mark to market was in the quarter.

That was almost $15 million, both on balance sheet and through our investment in the funds through two separate investment areas. If you go to 11, a you can see what the balances for our ATV wanted to of approximately $44 million.

Within that and within our on balance sheet valuation for our smart rent investments, it's about $34 million today. If you look at our ownership percentage in current stock price that investment's, probably were $75 million to $80 million and so you are somewhere in the $40 million to $45 million left over time, obviously there is.

Liquidity constraints and yes, we will try to align with our partners on that investment in terms of how we move forward with it so.

Very pleased with it I think the bigger two issues coming out of it.

One phenomenal to hit a grand Slam here on it is that $75 million basically pays for all of our smart installs as well as all of that $30 million initial investment in our platform. So taking care of that investment is fantastic.

Well as you think about this being a critical piece of the foundational infrastructure for the.

Platform being able to help set up the self guided tours.

That drive the larger funnel that's been a huge win win for us as well as the residents given it helped us from an expense control standpoint helped give us additional revenue, but obviously helps the resident in terms of controlling their living environment.

And there are overall resident experience with us so I've been very pleased with the smartphone the partnership we've had with them.

Yeah.

Thank you. Our next question comes from Alex Kalmus with Zelman and Associates. Please proceed with your question.

Alright. Thank you very much just turning back to the eviction process throughout your diverse portfolio can you describe how that process is playing out.

Versus a baseline where the moratoriums have been lifted.

Yeah.

I guess, starting with a couple of numbers as Joe talked about Theres, only about 50 bps or so.

Kind of long term non payers that if we could move right now.

Would move or have moved on you have to remember these are people that have been wholly nonresponsive.

Really over the entire period of Covid and we've reached out to them consistently.

Hey, just wanted to talk to us they won't apply for rental assistance eviction for US is really a tool of absolute last resort and is really to try to get them either into the application process.

Just get them once again to work with us on some sort of payment plan et cetera.

So we are a little bit more I.

I guess I would say free from an eviction type process in places like Texas, Florida et cetera that don't have moratoriums anymore. However, we also had significantly less delinquency down there. So the numbers are fairly de minimis.

There's a lot more handcuffs when it comes to coastal markets, especially those with the moratoriums still are effective moratoriums in the form of kind of bridged regulatory restrictions.

Continuing to work towards that but.

Really the biggest piece and a lot of those coastal markets is that.

If you are trying to move forward or trying to get someone to work with you.

Have to apply for them and after that maybe you can move on them. So we're working through that resident by resident as we've talked about we want to work with everyone. We can we want to help everyone. We can we want to source assistance for everyone. We can.

But at the end of the day some people.

We will not work with us.

Got it thank you and just starting to more generally on the acquisition market Theres been.

A lot of well funded permanent capital vehicles that are open ended and how is that playing out in the competitive environment today and what do you think that will.

Translate to in the long term in terms of your ability to acquire new assets and and dispose of it.

Attractive prices.

This is Harry.

Yes, you touched on a major point, that's driving cap rates down. So you think about the sort of three legs. One is the interest rates, which are below two is projected operating performance, which is now very positive in threes capital flows which are enormous and so you've seen a cap rate response as a cap rate.

Yields have gone down and values have gone up.

From our perspective, I mean, the way we think about it is we're not going to buy everything there'll be call. It a $150 billion to $200 billion in institutional type apartments that will sell in 2021, and 2022 will probably be something very similar.

We continue to focus on that.

Types of assets that we've talked about on this call in.

Really over the last year or two where over the last year, we bought a dozen properties for $2 6 billion seven and candidly over the last two and a half years, we've invested $3 $5 billion between acquisitions.

Element DCP.

We've invested in 13 markets across that time, so that that gives us a fairly wide brush where we can.

We can source our deals.

And I'm not suggesting that its easy that it's getting easier. It certainly is not.

I only need a few to continue to deploy the capital that.

We raised.

Thank you there are no further questions in the queue I'd like to hand, the call back over to chairman and CEO, Mr. Toomey for any closing comments.

Well certainly in <unk> and thanks to all of you who have been on the call.

For your time and interest in UDR.

As you can tell we're really excited about our business and the prospects for the future.

But I want to remind you we remain focused on continuing to execute our strategic plan as well as.

Oh, hi execution rate on our differentiated value creators.

A couple of closing other thoughts.

Pleased with our team.

And our culture, we built which was really evident in our associate engagement both in the response and the feedback.

And very proud of that and thank all of my associates for what they have been doing through COVID-19, but what we've built for the future.

And lastly for the recognition by grasp.

As <unk> as an ESG leader.

With that we look forward to seeing you at NAREIT and help you take care.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.