Q1 2022 UDR Inc Earnings Call
Greetings and welcome to Udr's first quarter 2022 earnings call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
As a reminder, this conference call is being recorded it is now my pleasure to introduce your host senior 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 IR Dot UDR dot com.
In the supplement we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures 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 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 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 first quarter 2022 conference call.
Presenting 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, Andrew Kantor, and Chris Van Ens will also be available during the Q&A portion of the call.
Okay.
Let me start off by saying this remains the strongest operating environment that I or any of my fellow associates at UDR have ever encountered.
Demand remains robust turnover continues to decline.
Blended lease rate growth has continued to accelerate from already elevated levels of new supply growth remains relatively stable.
These factors when combined with the accretion we are seeing from our repeatable operating and capital allocation competitive advantages.
Our strong first quarter results and full year guidance raises.
As outlined in Yesterdays earnings release.
We as an industry do continue to face a variety of challenges many of which are out of our control.
First inflation on balance inflation as a net positive as wage increases correlate to rent growth.
Rising hard costs mean higher replacement costs and increased asset values the.
The downside is higher personnel.
And repair and maintenance costs G&A increases to attract and retain associates.
And rising interest rates.
We have effectively mitigated these negative factors through one our platform efforts that constrained controllable expense growth below inflationary levels and to proactive debt management whereby over the past three years, we have increased our duration and to have a minimal.
Debt maturities prior to 2025.
Second ongoing regulatory restrictions elongated grace periods once restrictions are removed and backlog CT systems continue to hamper our ability to efficiently run our business. The current environment is decidedly better than in 2000, 22021, and while our ultimate collection.
Right I've been between 98 to 98, 5%.
This is over 100 basis points below our pre COVID-19 levels.
And last.
How current geopolitical risk may ultimately impact the U S economy.
And consumer remains to be seen.
Given this at UDR, we continue to focus on what we do control, which includes first utilizing operating and capital allocation competitive advantages when opportunities present themselves. These unique capabilities drive our top and bottom line growth and enhance our sizable <unk>.
<unk> operating margin advantages first public and private peers.
<unk> continually innovating to find the most profitable and efficient ways to conduct our business that are wins for our associates. The company, our residents and our stakeholders and third ensuring that we continue to cultivate and enhance our already vibrant inclusive and engaging.
<unk> culture as it is and will remain the cornerstone of our success.
All in all I'm excited as I've ever been about our prospects for 2022 and 2023 to all associates listening.
Keep up the great work.
No that the senior management deeply values, what youre continue to accomplish.
Yeah.
Moving on we continue to build on our position as a recognized global leader in ESG with our commitment to investing in multiple climate Tech and ESG focused funds. These investments should help identify both in the apartment home.
And property wide solutions to better address climate change and lower our carbon footprint.
Similarly, our commitment to adopt S. E T. I this year, along with extensive company wide resources, we already dedicated to enhance our sustainability will help to further refine our long term ESG strategy.
In closing, we remain very optimistic on the strength of the multifamily industry as well as the ultimate and resiliency of the American economy and consumer.
We have the right strategy competitive advantages and a team in place to capitalize on the opportunities set that lies ahead of us.
I look forward to when we can share another update with you.
That most likely will be at NAREIT.
And with that I will turn it over to Mike.
Yeah.
Thanks, Tom.
Again strong same store cash revenue growth of 10, 8% top of the range of 10% to 10, 5% we provided in early March.
Key components of this resolve and our year over year same store cash NOI growth of 14% included.
First.
Quarterly effective blended lease rate growth of over 14%.
Our blended growth accelerated each month during the quarter was 240 basis points higher than what we achieved during the fourth quarter and benefited from minimal concessions granted.
Second weighted average occupancy held strong at 97, 3%.
100 basis points higher than a year ago.
And third annualized turnover was only 34% decreasing by 530 basis points versus a year ago, and 570 basis points below our historical first quarter turnover rate.
These favorable trends have continued into the second quarter.
Blended lease rate growth has continued to accelerate to 16% to 17% in April .
With new lease growth of more than 18% and renewals are better than 15%.
This is driven by robust widespread demand and our ongoing ability to capture our in place, 10% to 11% portfolio average loss to lease.
Occupancy shows no signs of deterioration as alternative housing options like single family rentals and for sale homes have become even less affordable versus multifamily.
Based on current rents versus the cost of home ownership. It is 45% less expensive first 35% pre COVID-19 to rent than own across UDR markets.
And turnover remains light in April thus far.
All else being equal, we expect second quarter blended lease rate growth to range.
10% and 18%.
Occupancy averaged 97% to 97, 3%.
And annualized turnover to remain well below prior year levels due to a combination of higher demand.
Our continued focus on the resident experience.
These trends combined with the fact that we now have good visibility on 65% to 70% of our full year rent roll. It gave us the confidence to meaningfully increase our full year 2022 same store revenue and NOI guidance ranges.
We now expect to achieve mid point growth of 975% for same store revenue and 12, 5% for same store NOI on a straight line basis.
Relative to our prior full year 2022 outlook the drivers of our improved guidance ranges are as follows.
First we expect full year effective blended lease rate growth of approximately 9% to 11%.
Which is 3% higher at the midpoint compared to our prior assumption.
For the first half of 2022 we expect blended lease rate growth in the 15% to 16% range.
Implying a range of 4% to 6% in the second half.
Across our portfolio and excluding the approximately 7% to 8% of NOI that remain subject to limits on renewal increases we continue to see growth rates converge irrespective of market location within a market or asset quality.
Second we continue to expect occupancy to remain relatively high and average 97, 2% to 97, 4%.
Or a 10 to 30 basis point improvement over full year 2021 results.
And third we still expect controllable expenses.
To be limited to 2% to 3%.
This is 100 basis points below that of our overall same store expense growth guidance, which we increased by 50 basis points at the midpoint.
Primarily due to rising insurance costs.
Our updated guidance continues to imply a second half slowdown in blended lease rate growth as we approach more difficult prior year comps and regulatory restrictions on renewal rate growth remained certain markets.
There is little that presence, suggesting a deterioration in multifamily fundamentals.
So any upside to this expectation would have a modestly positive impact on 2022 results with the majority occurring to 2023 via higher earnings as we move throughout this year.
Based on current guidance or implied 2023 earnings would be in the low to mid 3% range.
Or approximately 50 to 100 basis points above our highest earn it over the past decade.
Moving on collections continue to trend above 98% overtime.
In our 2022 guidance assumes we ultimately collect 98% to 98, 5% of billed revenue.
Our governmental affairs team continuously monitors the regulatory backdrop and worked with our teams in the field to develop action plans that address the less than 1% of our residents we remain long term delinquent.
This proactive approach benefits residents the company and our stakeholders.
Finally, our ongoing innovation continues to bear fruit to date, our 250 basis points controllable operating margin advantage versus peers at a similar rent level has generated over $20 million of incremental NOI on our legacy communities.
In addition, our unique self service model combined with our other capital allocation competitive advantages and strong market growth has.
<unk> has supported year, one NOI that is 7% above our initial expectations for more than $1 5 billion of late 'twenty 2020 , One third party acquisitions.
This equates to a weighted average current yield of 5%.
From mid fours at time of acquisition.
Given our embedded loss to lease and favorable market rent trends, we see a path to achieving our original underwritten your three yields in the mid to high 5% range roughly one year ahead of schedule.
Looking ahead, we will continue to find ways that our ongoing innovation can beneficially impact our bottom line as well as our residents experience with UDR.
As we have spoken in the past, we believe improving the resident experience increases retention drives pricing power higher through pricing engine optimization.
Reduces controllable expense growth in the form of fewer vacant days.
And can lead to UDR assessing a larger portion of our residents wallet through ancillary services.
We remain confident in our ability to achieve our target of at least $20 million of incremental run rate NOI over the next 24 months through these initiatives.
While also progressing towards capturing much more over the long term.
In closing.
2022 is off to an incredible start which deserves a sincere. Thank you to all my colleagues for their hard work and innovative ideas that keep our company operating at a high level.
And now I'll turn over the call to Joe.
Thank you Mike the topics I will cover today include our first quarter 2022 results and our updated outlook for full year 2022.
A summary of recent transactions and capital markets activity and.
And our balance sheet and liquidity update.
Our first quarter <unk> as adjusted per share of 55 cents achieved the high end of our previously provided guidance range and was supported by strong same store revenue growth and further accretion from our 2021 acquisitions.
For the second quarter, our <unk> per share guidance range is 55 to <unk> 57 or.
Or an approximately 2% sequential increase at the midpoint.
This is supported by continued positive sequential same store NOI growth and accretion from recent capital allocation activities.
Really offset by increased interest expense and higher G&A as we have enacted wage increases to better ensure employee retention at all levels.
These same drivers led us to increase our full year 2022 F away and same store guidance ranges.
We now anticipate full year <unk> per share of $2 25 to $2 31.
The $2.28 midpoint represents a two penny or 1% increase versus our prior full year guidance and a 13, 5% increase versus full year 2021.
The increase versus prior 2022 guidance is driven by the following.
A four penny benefit from improved NOI.
Offset by approximately one penny each from higher interest expense and increased G&A expense.
Our same store guidance, we have increased our full year revenue and NOI growth ranges on a straight line basis by 125 basis points and 150 basis points, respectively to 9.0 to 10, 5% at 11.5 to 13, 5%.
Due to lower realized unexpected concessions for the rest of the year, we increased our full year same store revenue and NOI growth ranges on a cash basis by a higher amount of 175 basis points.
This narrowed the prior 100 basis point Delta between our cash and straight line same store revenue guidance ranges to 50 basis points.
Additional guidance details, including sources and uses expectations are available on attachment 14, 15 D of our supplement.
Next.
Transactions and capital markets update.
After completing $1 5 billion of accretive acquisitions in 2021.
Our first quarter external growth activity was primarily focused on DCP investments and development.
First during the quarter to DCP investments were redeemed.
<unk> investment in the projects totaled $58 million for which we received life to date proceeds of $91 million, resulting in a weighted average IRR of 14%.
We used a portion of the proceeds to fully fund a new $12 million DCP investment with an $8 two 5% yield that's part of the recapitalization of a stabilized community.
We have a strong pipeline of DCP opportunities currently under evaluation.
Second we.
We delivered initial apartment homes at three of our active developments one each in Denver suburban Philadelphia suburban Dallas.
The expected weighted average stabilized yield for these communities is approximately seven 2%.
We also replenished and grew our development pipeline.
With two additional starts one each in Tampa and suburban Dallas of the Tribune Park.
For a total budgeted cost of approximately $188 million.
We believe both projects will be highly value add additionally.
Additionally, we are scheduled to close on the acquisition of a land site in southeast, Florida that is entitled for 300 plus apartment homes.
Third we commenced unit additions at 2000 posts and San Francisco.
We have experienced strong demand for our unit additions at <unk> Bill in the same market and continue to evaluate similar opportunities across our portfolio.
Across three active projects, we're adding 58 apartment homes with expected IRR is in the mid teens.
Moving forward, we anticipate expanding our redevelopment and densification pipeline to take advantage of the ongoing strength, we are seeing in the market.
All told we have a healthy and growing pipeline of D. C P land and development opportunities.
We also continue to evaluate wholly owned acquisitions in target markets utilizing our portfolio strategy and predictive analytics frameworks.
To Accretively match fund these future uses of capital.
We entered into a $400 million board equity agreement during the quarter.
Please refer to yesterday's release for additional details on our recent transactions and capital markets activity.
Moving on.
During the quarter and subsequent to quarter end, we further enhanced our ESG leadership by committing to invest a total of $20 million into several strategic ESG and climate technology funds.
The investments within these funds are intended to be directed toward identifying and home property wide and more general innovative real estate technologies that are intended to help UDR, our residents and others reduce our collective carbon footprint.
Finally, our.
Our investment grade balance sheet remains liquid and fully capable of funding our capital needs.
Some highlights include.
First we have only $290 million of consolidated debt or just over 1% 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 8%.
Second.
As of March 31, our liquidity totaled $1 7 billion.
And provides us ample dry powder to continue to accretively grow the company as we identify opportunities.
And last.
Our leverage metrics continue to improve.
Debt to enterprise value was just 22% at quarter end while.
While net debt to EBITDA was six four times down from seven times, a year ago and remains on track for approximately six times by year end.
Taken together.
Our balance sheet remains in excellent shape, our liquidity position is strong.
Afford sources and uses remain balanced and.
And we continue to utilize a variety of capital allocation and competitive advantages to create value.
With that I will open it up for Q&A.
Operator.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press star two if you'd 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 star keys.
One moment, please while we poll for questions.
Our first question comes from the line of Nick Joseph with Citi. Please proceed with your question.
We've heard from some of your peers about delinquency and collection issues in southern California, specifically and I recognize there's different submarket footprints in different.
Kind of bad debt assumption.
The assumptions embedded in guidance, but just on the ground what are you seeing in southern California for your portfolio specifically in terms of collections.
Hey, Nick it's Joe.
Similar to our peers that have kind of spoken to and AQR here a couple of hours ago.
We are seeing something a little bit similar we do have a decidedly lower exposure to Los Angeles.
Our Orange County portfolio has seen similar trends.
It does seem to be specific to southern California.
We do have a little bit more of a b quality portfolio and lower income portfolio, Northern California. So we saw a balanced let's pick up about $1 million on a quarter over quarter basis. Some of that is due to typical seasonality. We usually do see January and February collections, a little bit lower than trend, but.
But we also saw applications for government assistance tick up about $1 million as well on a quarter over quarter basis. So similar to what you heard.
I think there were a number of residents that had been payers in the past simply stopped paying and trying to take advantage here before government assistance funds have expired here in <unk>.
March so you know.
To date here early in April cautiously optimistic of what's kind of dug into it a little bit more that those individuals are reverting towards pain and some cases, so I think by the time, we get out to June NAREIT little bit more commentary for you on the trends that we're seeing there.
Thanks, that's very helpful. I think you talked about the commitment you've made to the prop tech and climate related funds.
How did you think about sizing those commitments and then what are your financial and I think you've touched on some of the strategic goals, but what should investors expect out of those investments.
Yeah, I guess, if you go back over time and look at what we've tried to accomplish here with the first two <unk> funds and of course, there is the financial and investment return that we expect to get out of the fund, but more importantly, the $1 five of revenue the $400 million of expenses.
The capital allocation and platform benefits, that's really what we've been focused on with the oriented funds and you've seen a number of examples of that throughout over the last couple of years. This is really an expansion of that so when you look at the strategic fund that $25 million commitment similar consortium of investors and limited partners. There that are focused on.
More permanent capital type of vehicle for Big picture technologies that will benefit the entire industry. So I think along the lines of CRM ILS is pricing engines maintenance and pricing.
Those type of items more on the strategic side.
When it gets into the climate side, you can see that $10 million commitment we made in the quarter. In addition, our press release went out last Friday.
<unk>, along with Essex and ourselves.
So the numbers of a housing impactful so another $10 million investment there.
What we're really trying to do there as we've laid out our commitment to <unk> and our plans to move forward with that and advance our industry, leading ESG efforts that we already have in place.
This allows us to just get more focused on that so we're looking at in home tech outside of home Tech.
And really having experts that we can tap into on a daily basis that give us access to a lot of the different.
The types of technologies are going to impact our ESG on a go forward basis, and our carbon footprint on a go forward basis. So that's really what we're focused on those.
Thank you.
Okay.
Our next question is from Steve Sockwell with Evercore. Please proceed with your question.
I think so yes, yes, there's still good morning out there I just wanted to circle back on Mike's comments about you know the blended gross I think he said, 15% to 16% in the first half, but 4% to 6% in the second half and I realize comps get a lot tougher and you know maybe concessions are you know playing a role where concession.
It really burned off maybe by the middle of the year and so I guess, what I'm really trying to get at is what is the underlying assumption about market rent growth.
Within your framework for this year and maybe how has that changed or you know, what's the maybe potential upside to the guidance numbers of market rent growth is faster than what you're currently expecting.
Hey, Dave It's Mike I appreciate it.
To your point, let me just back up a little bit Youre right. We did say around 14% blends in the first quarter at around 15% to 18% in the second quarter and when you look at that we did provide 15% to 16% in the first half that compares to a 10% to 11% we previously.
Guided to and now we think that back half is around 4% to 6%. When previously it was around 4% the way we look at it as is.
Basically trending our market rents. So when you think about how it should play out over the next call. It six to nine months, we've looked at previous pre COVID-19 numbers and it was.
Right around two.
2023, so it was right around 4% to 6% and again, we think that it's.
Historical numbers Steven it.
It should play out that way, we will see how it how it ends up but what I would tell you is 2022.
It's going to make a minimal impact at this point, if it's even want to call. It 5% higher it's really going to start playing out in 2023 and I made that point in my original remarks that it should be upwards of 3% earn in which would be the highest I've seen in my 16 year career here at UDR.
Right and and I realize I'm I'm, putting the cart before the horse or getting ahead of myself as you think about next year and full year numbers, but that earn and will obviously grow over time that these.
Spreads that you're talking about sort of play out on unfolds I mean, how does the arn and typically change sort of from this point forward. If if all of your expectations get hit does that earn and typically double does that earn and go up 50% from here like how do we sort of think about the exit rate you know going into next year.
No. It typically grows it really depends on what happens in the third quarter. So with the highest exploration period of time, what kind of growth and it's really on a gross basis not on an effective basis.
What we get at that period of time will really start to impact what that earn his his next year. So again, we're pretty.
Optimistic that that 4% to 6% it could trend higher and if it does that will lead to a higher earn in next year.
Hey, Steve. This is to me I think one factor thats, making it hard to forecast is the record low turnover.
That we're having right now and as we come into the Prime leasing season does that tick up with these types of price increases.
Seeing no sign of that and our notices that we set out.
So that kind of point to the higher side of it.
You will end up.
Everybody else is having the same experience long turnover they have more confidence in raising that market rent number.
And that's Mike just hedging is that's the right way, which is how much does he able to press gross rent.
With a low turnover number.
And if this turnover stays traffic has been extraordinarily strong so I think thats partly technology.
Nobody's moving.
We feel pretty damn good about it.
But as I think Mike started labs, what's most important at this point in time was 65% of the revenue already figured out for 'twenty two.
Is what's holding us back.
How are we setting up 23.
In 'twenty, three looks pretty damn strong right now.
Yeah.
Thanks, that's it for me.
Our next question is from Anthony Pallone with J P. Morgan. Please proceed with your question.
Yeah. Thanks. My first question relates to development are you picked up some around and you're starting some things can you talk about how your underwriting rents from these levels as you think about delivering development in a couple of years and also opex and where cash on cash return.
I need to be in the face of just higher inflation financing costs et cetera.
Yep, Hey, Tony good to hear from you.
Maybe start with current development pipeline, because I do want to mention what's going on there. So we did add a couple of new starts here in the quarter, so taking that pipeline up to around 700 million.
If you kind of bifurcate that into two groups.
You look at the lease up deals that are going fantastically, well kind of mid to high 6% stabilized yields at this point, so pretty great performance on those the newer starts kind of trending towards the higher fives low sixes, so pretty consistent with where we've historically been.
But importantly on your question around cost and inflation.
Majority of those cost on that $700 million pipeline are fully bought out at this point I think we only have about $10 million of hard costs that remain to be bought out and we're carrying a contingency in the high single digits for that one so Steve minimal restaurant costs.
Cost per standpoint on those.
As you think about what we have coming up in terms of new ones.
We bought a or in the process of.
A parcel in Fort Lauderdale, We've also got a number of opportunities that we kind of started to allude to with the equity raise and some of the upcoming uses of capital, but we've got.
Southern California Inland Empire, Denver D C as well as Dallas and so we've got a pretty robust pipeline, we're working through on the land side.
What I'd say is near term definitely underwriting above inflationary.
Type of cost increases, we have seen pretty substantial cost increases over the last 12 months a lot of that on the hard cost side and a lot of that driven by labor and some of those harder sunbelt markets. If you will.
But from a yield standpoint.
We're just holding pretty close to where we've historically been.
Current yields kind of five and a quarter ish and on a stabilized basis kind of high fives 570, 566%.
When you think about the value creation margin still commensurate with what we've talked about historically when you look at day, three and a half to four cap type of market.
Looking at 150 to 200 basis points of margin or value creation, which is in line with history. So we got a little bit juicy there for a while when cap rates compressed yields filled up but now we're back to normalcy.
Okay, that's real helpful and those tend to get into those fives.
Yields going in do you have to do much with rents compared to where they are today.
Yes.
Five and a quarter the way we look at it.
Current trended data or a current basis, that's a current rents in the market for what the asset would attain today relative to a trended cost basis, and so having an above inflationary cost trend on that so that gets you to five in a quarter. If we keep those costs, where they are at and as we go through the development and lease up and get the stabilization we would.
Those rents to grow kind of long term averages of plus or minus 3% that gets you to roughly five and three quarters.
Okay, great. Thanks for that and then I'll just stick with you for just one second question.
The bad debts did you have a number for the first quarter I may have missed it just on a percentage basis, I guess net of any reversals or the government stuff I don't I didn't catch that.
Yeah. So what we effectively had when you're looking at the combination of write offs plus reserves, we've been able to go back over time through the last couple of years and collections over time typically get it two plus or minus 98, 3% in this environment.
So you can think about a net bad debt number of one 7% between a combination of write offs in the quarter and incremental reserves. If there are any to that extent.
When you look at our bad debt versus reserves in the quarter.
Accounts receivable accounts receivable was just over $24 million about $1 million quarter over quarter increase the reserve against that came down slightly to roughly 12 million. So about 50% reserved. The reason it came down was because we continue to have better and better history over time of getting to that 98 plus percent number over time.
The other way I would kind of think about it is you have $12 million of unreserved risk.
So the way we get comfortable with that is if you look at three different buckets, we've got about $11 million out there in government assistance applications, which we believe are close to money. Good overtime Theres just delays within those processes do you have another $7 million of partial payers over time. So those are individuals that have demonstrated a willingness in.
Ability to try to make good on their rental payments, but sometimes it just takes them longer than normal and so we think over time those will start to come in maybe not to the 100% degree, but definitely some of those will come in and then you have about $6 million of long term delinquents, which.
Or the residents that despite all of our efforts to work with them on government assistance on payment plans on relocation options things of that nature.
They have really settled in and so those are the individuals that.
We're trying to continue to work with but if they choose not to then those are the ones that will be go into court with I'm trying to get those units back over time.
Yeah, Tony just to add this is toomey.
I think the bad debt this whole system, we've been through over the last couple of years.
Team has done an exceptional job of getting out in front with the government aid.
Getting in front of our residents understanding where the situation is work with the people, we can work with and for the ones that to.
To be a little French squatting on us.
The court systems are starting to open and they see that piece of the equation. So I think as the year goes by this gets back if it's 90 898 five collection type process I'm not sure we will get back to our pre COVID-19 window of 90 95.
I think it's just going to be challenging with some of these municipalities to get there. So if I'm thinking about 2003.
We're generally running in our mind at 98, five next year with a hope that we get 50 bps above that number.
That'll be next year this.
This year I think the story is just start over and it just grind it out.
Okay. That's helpful. Thanks for the 23 look there.
Our next question is from Nick <unk> with Scotiabank. Please proceed with your question.
Hi, everyone. Thanks in terms of the guidance first question is just on interest expense that that going up Joe maybe you could talk about what drove that higher.
Yeah, Hey, Nik.
It really has to do with the floating rate side of the equation. So we've done a pretty exceptional job over the last two to three years.
Going after our maturity profile doing a lot of prepays and lower costs down in that two to two 5% range versus the.
Kind of low to mid threes in place today, so low to mid fours.
So we've done a great job on that front. So it doesn't have to do with anything that we had planned in terms of new issuance or refi activity. It's all floating rate oriented and so we've got about $400 million plus or minus a floating out there call. It six 6% to 7% of total debt stack and so as the curve has obviously ticked higher here to start the year with a.
Fed rate hike expectations were just updated for where the curve is expected to be and so that had about a $2 5 million or 6% to seven tenths of a penny impact on the outlook here.
Okay got it and then I guess as we think about there's some moving parts for the rest of the year in terms of where you may raise debt or you or you or you may not right. I think you have that guidance range of zero to $250 million of debt issuances.
You have that swap expiring on a piece of the term loan.
Commercial paper rates, presumably going up I guess, maybe for those pieces. If you could just give a feel for if that's already factored into guidance or is there's also a chance that maybe interest expense could creep higher than guidance because of some of those issues.
Yeah, I feel pretty good now at this point in terms of where we're at we have a little bit of cushion in there most likely if we got another 25 or 50 basis point raise beyond our current expectations.
<unk> loan and the swap associated with that it's definitely in there.
Did mentioned, we do have the term loan swaps or 50% of that turned out for a couple more years at a fairly low rates that is locked in.
The swing factor on that is simply going to be do we have that equity deployed in do we ultimately lever some of that equity given the capacity that we're creating here.
Right now that's up for discussion given the additional debt issuance isn't necessarily accretive in this environment and so we've accounted for a potential range. There in terms of zero to $250 million, but not necessarily certain that we'll act on it we're going to evaluate the environment as we go forward later.
Later in the year.
Okay very helpful. Thanks, Jeff.
Yeah.
Yeah.
Our next question is from Brad Heffern with RBC capital markets. Please proceed with your question.
Yeah, Hey, everyone. Obviously, you took up the acquisition guidance this quarter without anything actually getting down in the first quarter.
Can you talk about the pipeline and also your thoughts on your expectations for accretion just given the 19th leverage environment.
Yep, Hey, Brad it's John .
Yeah, I think stepping back a little bit.
Yes, we did do the equity here in the first quarter towards the end of the quarter with $400 million.
Just about a 50 757 net.
So what we saw at that point in time was a increasing opportunity across kind of all of our value creation arms between developer capital program re Dev development and acquisitions. So after kind of six months of no equity issuance de minimis external growth, where we sat back and really just couldn't find opportunities that fit with what we were trying to do.
From a platform perspective, and an accretion perspective, we are starting to see more of those opportunities today. So we felt it was the right time to do the equity.
As I took across each of those.
Within the developer capital program, we did announce a recap transaction during the quarter.
But beyond that we do have.
Minus $100 million pipeline of opportunities there that we think we will get some or hopefully all down over the next 12 months and so we do feel very good about continued deployment on the DCP side on development side.
The Fort Lauderdale land acquisition and in a prior question. You mentioned you know, we've got 100 plus million dollars of other land sites that we're working through various points in the process on and so that will add to the uses as well as forward uses and capacity there.
And then on the acquisition side, we've got a deal tied up in suburban Boston right now that is in the low fours forward cap rate range.
Yes checks a lot of the boxes that we've talked about previously in terms of the operational upside the platform efficiencies the capital expects expenditure programs et cetera, and so.
Between all of those you've already got.
Plus or minus $400 million of identified uses and so that leaves another several hundred million there that we'd hope to be utilized for acquisitions as you know the market continues to come our way.
Okay got it and has there been any.
Noticeable change in competition as Youre looking at new acquisition.
Okay.
Hey, This is Andrew I guess just was out at you ally in which provides great market checks are in San Diego and what I can report back to you is is that theres, a very active market. It we're participating in Theres a continued wall of capital looking to increase their exposure to apartment listing is on new deals is not diminishing.
Fact, there's a record number of deals year to date, it's up about 60% over 2021.
And it is we know there's continued great fundamentals.
What we're starting to see as it relates to the pricing side is it really varies based on location and asset quality and buyer type.
The buyers are being a bit more patient and looking to be opportunistic with pricing re trades and sellers are seeing thinner buyer pools due to the abundance of options available in the market.
This has impacted the sellers' ability to push pricing after initial bids have been received.
Movement in interest rates is clearly the largest driver thats impacting pricing and therefore levered buyers are seeing more of an impact on pricing.
Unlevered buyers and low levered buyers are still very vibrant in the market.
In our markets, we're seeing the market as Joe mentioned come to US, we're seeing you know pricing flat to down as much as 10%.
Although as always it depends on the property in the market, we're seeing the biggest changes in.
In assets that had run the most in pricing recently and those that are attracting buyers that are using the highest leverage points.
On average cap rates compressed roughly 100 basis points over the last year.
That's three in a quarter to three and three quarter range as buyers were able to underwrite and capture the significant mark to market in the in the rent rolls.
Today, we're seeing cap rates closer to three and a half.
Four and a little bit higher markets like San Francisco, and New York and I haven't been as in packages. They continue to have runway of rent growth versus communities into Sun belt that have already benefited from significant rental increases are in the run rate over the last several quarter you were saying you know what.
What I would end with is it's important to remember that.
Although pricing has recently moved.
I said flat to slightly down.
Almost all assets across our markets and across the country has seen a rapid increase in pricing and even today with those pricing changes are still more valuable than they were eight to 10 months ago.
Got it thank you.
Our next question is from Austin, where Schmidt with Keybanc. Please proceed with your question.
Yeah. Thanks, guys. So on the last call you guys talked about and are entering 2023 with a mid to high single digit loss to lease and I was just curious if the updated guidance assume that that you recapture.
Some of that loss to lease and so youll be entering next year, I guess that a lower loss to lease position.
Or if you still think that you can be within that range.
Since Mike we actually don't think we're in that range as of right now because with the updated guidance in that back half would you think market rents are slightly higher than what we provided last quarter. So that'll help with that loss to lease as we enter next year.
Got it and then I was just curious if you could talk about where you guys are seeing construction pick up I mean yourselves and a number of others had started to pick up a little bit on the development side, but when you look across all your markets, where do you see that picking up the quickest and at what point do you think you start to see supply pick up in any meaningful fashion that it could.
You know.
You know maybe.
Hinder your ability to drive rate.
Yeah, Hey, just on Australia.
I think near term feel very good about the supply picture in terms of.
And relatively constrained this year in our markets and Submarkets were up 10% to 20%, but that's only about 17181, 9% of stock so very very very manageable level, especially given the level of demand that we're seeing out there.
So no real concerns near term, there's obviously some markets that as a percentage of the stock or year over year growth.
A bit more concerning so a couple of sunbelt markets as a percentage of stock up on the 567% range. Some of our coastal markets have a little bit of a residual impact like a new York or Seattle that still have some supply coming through from kind of pre COVID-19 starts but.
But I think that starts to dissipate when you look at the coast on a go forward basis next year. So permits obviously dropped off quite a bit during the downturn in the coastal markets as capital continued to flow into sunbelt, and therefore development dollars and permits were flowing into sunbelt. So.
You could start to see more pressure in the sunbelt permit wise, they're still up 40% versus pre COVID-19 .
You'll probably see some pressure there coming.
Markets like Raleigh, and Atlanta, and Charlotte that we're not in as well as probably Austin and Nashville.
<unk> see some supply pressures, but balanced with really good demographics and population growth and.
Income growth, there, which they haven't seen overtime, so hopefully ability to absorb some of that supply, but generally speaking the supply is pretty well constrained at this point in time.
Hey, Austin, Tony I think Joe did a great job of bringing down the market a couple of things to really way.
Is housing as an industry and you've seen it most recently in the single family side.
The overall demand for household formations about 4 million annually and we're still producing about too.
But single family has taken a little bit of a hit lately with the rate increases the price run ups.
So that always pushes people keeps them in their apartments longer.
And I honestly.
I'm not overly worried about the supply equation given that single family probably has to take a pause if not retreat.
And that's going to give us.
At least through a strong 22 head into 'twenty three again, another wind at our back.
It looks favorable for us so and with the difficulty in trying to build in this climate.
It's going to slow down that supply equation. So I think it's all going to translate into.
A pause on the supply side.
Not an acceleration.
Work, our butts off to try to keep it at this level, that's going to translate to pricing power on my side of the operational equation. So feel really good about that.
Part of the business that demand side.
We are seeing.
Strong demand strong would be polite extraordinarily strong.
Demand across all of our markets still.
Okay. Thanks for all the detail.
Our next question is from Rich Hill with Morgan Stanley . Please proceed with your question.
Hey, good afternoon guys.
Wanted to come back to this.
There's a question about <unk> or the topic about earn ends and the reason I focus on it just because there's a lot of focus on rate of change. So I think the comment that you're making is really important I just want to make sure I understand it and I'm on packing. It correctly I think what you're suggesting is while the rate of change might beginning might begin to decelerate.
Right.
Rents are still rising in absolute terms and that creates embedded growth in 'twenty three as a starting place of around 3% and then you have growth on top of that based upon wherever you can take occupancies in leasing spreads is that is that the right way of thinking about it and hopefully I'm not asking a painfully naive and dumb question, but if you can just help.
Me unpack it a little bit more of that would be helpful.
No rich I think you just nailed it right on the head Thats the way, we think about it and as we think about that back half again, a lot of that is going to be gross rents. So when we entered this this year back half of last year. It was mainly effect and we have a lot of that was the burn off of concessions, but as we move forward, we're going to continue to see these market rents.
Right and some of these markets for example, San Francisco, Boston, Seattle, and D. D C. Even to some extent are off the charts right now compared to what we've historically experienced at this time of year and so as you have then you go into some of those higher LTM periods of time, that's going to start building up your 23 as well as to help you out.
Little bit in the back half of 2022.
Yes, I understand it's an earnings power statement, which makes them it makes a ton of sense.
Can I ask one follow up question on renewal spreads renewal spreads are super impressive, especially in April .
Maybe walk us through why you're able to push those renewals as much as you can I suspect some of it has to do with the record low turnover and tenants just willing to accept a renewal as a bird in hand is better than two in a bush can you just walk through that dynamic and what youre hearing with negotiations.
No that's a really good question.
Again, you hit it right on the head what we're experiencing is with these market rents rising the way that they have been and we've really pushed hard coming out of the gate in January February that allowed us to push aggressively on our renewals because on the new side of the equation as well and the market rents they were supporting those growth rates. So as we've gone out there and we said.
A couple of months ago, we're going to be sending out in that 14% to 15% range.
Market rents continue to move that way they were going and it allowed us to not to negotiate with a lot of our our residents because frankly the markets have been increasing at such an incredible rate. So you have that I will tell you you have low turnover, which continues to support that as we move forward, we're definitely anniversary off of some higher numbers.
Especially as it relates to the sunbelt. So we'll have to see how that plays out but right now we're still sending out anywhere from 14% to 15% through July at this point.
Hey, rich it's Joe.
Just to follow up on that.
While theres a lot of either cyclical or structural dynamics here at play in terms of the record low turnover levels, the relative affordability and reasons to want to live in apartments I do think it's important to not lose track of what is is that Mike and team are doing differently.
You were kind enough to host us in Chicago last December and spent a lot of time talking about the platform and what we're focused on customer experience, but I think it's starting to bear fruit as well in terms of.
The data that we're utilizing to understand resident decisions.
Changing our actions and activities on a day to day basis. So that we can actually give them a better experience address issues that they may be having and ultimately change the outcomes for that resident and entice them to stay its not just about rent and how much they're paying out of their pocket. Each month, it's about what the experience that they have with us did they like being there do they like.
The neighborhood do they like the people and so we're doing a lot of work behind the scenes on that and so there are some UDR specific factors that I think play into this in terms of that retention number yeah.
I think that's a really good point and hopefully trends relaying to you the number of prop tech investors that want to speak to UDR, specifically on what youre doing different.
So get ready for more of those.
We're happy to help.
Alright, guys talk soon thank you.
Yeah.
Our next question is from John Pawlowski with Green Street. Please proceed with your question.
Thanks for the time, Andrew I wanted to come back to your comments on Youre starting to see.
Our industry colleagues are starting to see pricing flat to down 10% can you give us a sense for how broad based that is.
Small handful deals getting kicked to you or are you starting to see a broader trend.
Yeah Yeah.
We're starting to see more broadly is is that the buyer pools or center like I talked about so when you are getting more.
You're seeing less of the pricing move above.
Get to the levels that we saw earlier in the year in general the best assets are still pricing flat to slightly up but it's really those those assets that are further out that.
Benefited from the demand in the marketplace. So those are the ones the ones that you were.
King at but you're not really paying as much attention to us.
We're seeing the larger price changes on but the ones that we've been buying in the core assets I've had a much smaller number of reductions are much closer to zero percent.
Okay.
Makes sense and then just a few final questions.
Revenue enhancing capex and so.
You guys in the last seven to 10 years have been quite steady and just in terms of the revenue enhancing capex stick it being open.
Have you looked at now you have a very long time series of the spend have you looked at how kind of all in Unlevered IRR and compared to.
Other alternatives out there just buying additional building. So I was just curious in terms of the durability of this cash flow difference, yes, you get a pop on year, one rent, but out of like call. It all in economics stand out versus alternatives.
Yeah, Hey, John .
I'll say it depends.
So you kind of have a broad range within the spectrum right in terms of yeah. If you do unit additions such as what we're doing on attachment 10.
And you have kind of that perpetual life infrastructure that you're putting in place obviously the cash on cash return they need day, one to achieve your cost of capital is much lower.
The other end of spectrum into shorter duration, NOI or revenue enhancing capex. So okay. MBA program that may be a eight to 12 year useful life, you're going to need a higher cash on cash return upfront to still get to what we typically target, which is 150 200 basis points above our cost of capital from a IRR perspective and so.
We do do a pretty active monitoring process throughout the year Mike's team all the deals that are approved to start the year theyre constantly killing off and canceling deals that are attaining the rent premiums that were initially underwrite and then they'll bring new deals to the table as different markets move and we think we can get pricing power and upside on alternative investment.
Options and so we tried to be pretty disciplined around it I will say the challenge within that is always how does that premium hold up over time, and you're eight or you're 12 or yourself.
There is a little bit of art not just science involved in all of this but I do think we've got a pretty phenomenal track record on that front.
Okay, maybe we can talk more at NAREIT. Just final question for me given this has been very recurring at seven straight years and spent over $40 million per year in revenue enhancing capex at what point you have to disclose that or include that in the F. L as recurring.
I think the industry standard approach has been what's considered.
More than maintenance side, and so whats asset quality once turnover capex.
I would say is generally not something that we have discretion over those are dollars that you need to spend year in and year out what we're doing from a NOI enhancing perspective is trying to change that property. So hoping to take it from a b minus to a b plus if you will and so trying to upgrade the quality of that property, that's not something that we have to do year in and year.
We can of course choose to turn off that spigot.
So I think our disclosures are pretty consistent with how the industry looks at it.
That said I know yourself and others as well as ourselves internally spent a lot of time looking at full capex loads and looking at those not just on a per unit, but as a percentage of NOI basis, which I think is important so when we benchmark ourselves versus our public peers and where our portfolio should be.
We do find that recurring plus NOI enhancing is right down the middle.
Yeah.
Okay. Thank you.
Thanks, John .
Our next question is from Neil Malkin with capital One Securities. Please proceed with your question.
I everyone. Thanks first one.
Just in terms of capital allocation.
Yeah.
The southeast, Florida parcel I don't think do you have any.
Their assets there.
Alright.
Typically you guys are more of a kind of cluster. It you use the synergies and scale of the market in the operations.
The maximum.
Yeah.
Profitability NOI.
As you plan to incur.
Increase your presence into the Fort Lauderdale sort of South east market.
You know post the.
Potential development.
Hey, Neil it's Joe So we do actually have one asset down there that we've had for a fairly extended period of time, it's a little bit varied in terms of our ability to see it on our typical market disclosures.
We group them into the other market category. So if you go to attachment seven a within this up you could say, we do have a palm beach asset there for 636 homes. So we've had exposure there. It's a market that's between Broward and palm we've kept our eye on that market for a while and been trying to find opportunities. So the hope would be that we could.
To grow that.
Closure overtime.
We've liked that market for a while just finally found an opportunity that works for us.
Okay.
And then.
Let's see.
<unk>.
Other one for me is on.
Smart rent.
Obviously, they are a big part of your Nextgen.
I'm just wondering you know what.
Sure its share price performance are you concerned about like them as a going concern entity.
Again, given that you rely very heavily on on those.
On their on their software platform to sort of.
Run your business or are you confident liquidity and just.
Not an issue.
So I would say at this point in time, absolutely no concerns from a going concern perspective.
Know that their share prices come off from when they did the spec and so that has impacted in terms of the mark to market on our investment there.
I think the.
Valuation on our books today is roughly $55 million or so off of a $5 million investment so.
When that gets smarter next quarter, it probably comes down a little bit more.
But from a going concern perspective, absolutely not they've concern continued to perform for US continue to do installs as we expect so no operational concerns no install concerns the products works fantastically well for us across the board not just on expense savings efforts, but also on the self touring.
Don't see any issues there and when you look through what their balance sheet from a cash and liquidity perspective, no concerns there either.
Theyre, just not immune to supply chain disruptions, which thing has had an impact on <unk>.
<unk> had multiple as has the drawdown in broader tech so definitely don't think thats a going concern issue.
Neil originally assume either.
Good question Ali dovetails into risk vantage that in and with any of our technology and we've always looked at it and said if there's a hiccup are we able to sustain our business model our interaction with our customer and I can assure you with respect to start rent we were.
Can in hand with them.
Being able to sustain our business model should there be any disruption by a third party vendor in any part of our business.
I think thats, just good risk management, everybody understands it and the industry.
And smart rents very cooperative.
Precise on Joe's point about a going concern.
We're not going to comment on other companies business, but what I will say that product is industry leading.
And.
We will only continue to grow in penetration and usage.
So when the supply chain aspects are solved.
None of US know that if you do tell me.
They're going to go right back to the races, because their book of business is huge.
Sure. Thank you guys.
Our next question is from Juan Sanabria with BMO capital markets. Please proceed with your question.
Alright, Thanks for the time just a question on renewals are I guess the affordability.
Chris I think you said in your prepared remarks that renewals growth should slow given some some pressure across some markets. Maybe just hoping you could expand on that as well as comment on where renewals are being sent out for maybe June I think.
Maybe you have a sense for that or are those just got out and just how affordability is at this point.
Given some of the precipitous increases we've seen them into blended lease rates across the board.
Hey, why it's Mike I'll take that so just as it relates to the affordability piece I would tell you those rent to income ratio is something we watch very closely they haven't really changed a whole lot.
With wage increases happening at the rate that they are.
Crossed all of our markets, we feel pretty good about that but what I mentioned with some of the renewal increases as we move forward, we are sending out again in that 14% to 15% range.
As a whole, but we are seeing some of the markets, where youre seeing a little bit more pressure a little bit more turnover as it relates to rent increases and just to give you. An example, if you look at a place like Tampa for US, where we've had very strong rent growth for going on almost two years of pushing out.
Double digit renewal increases, we think that that's going to be a little bit more pressure as we go into <unk> because that's when we started pushing so hard last year and I'll tell you when we get into some of this data some of the big data that we have here, we are noticing that in a place like Tampa, where we have longer tenured residents theyre moving out quicker than.
Some of these shorter tenured residents and on the flip side at places like Ross. It's the opposite so in New York you have people that came in over the last year or so they've got a huge concession you are seeing them move out at a higher rate than some of the people that have been with us for over two years. For example, so those are just some of the metrics we continuously.
Watch and we'll continue to watch them as we move forward and I think as we get into NAREIT, we'll have a lot more information on whats being sent out in what we're signing as we go into court.
Okay.
Take too long.
As you think about that affordability piece, Mike went through the rent to income, but thinking more broadly than just multifamily in isolation, obviously, the affordability relative to single family has improved dramatically and so while our rent to income versus pre COVID-19 or plus or minus the same that relative.
Affordability versus single family.
I think 35% cheaper to about 45% cheaper so a huge swing there given home price appreciation combined with where interest rates have moved recently and so multifamily wins on that.
Every time.
So is the way to think about what you talked about in Tampa.
People who've, maybe moved down with a higher income at least initially maybe from New York has had a much bigger budget to spend and therefore draw.
Drove up rents rent to income ratios didn't move because they were coming in at a much higher price point I guess it given their income but that that may be is.
That benefit is subsiding and you don't really have that arbitrage as much going on it is that kind of what's going on.
Yeah, that's a good way to look at it and we think that they are a little bit more stickier, we think they've created a lot more job down there the wage in growth that growth has been incredible so that's helping out as well. So that's just some of the experience and again, it's only a couple of months of information right now so it's not necessarily a trend yet, but it's something we're definitely starting to watch.
One to me just a couple of data points that are helpful.
One it's great that Mike has all this data add as access and can look at how he is pricing and thinking about the future.
With respect turnover pricing power, what our resident composition is that on the rent income piece with record low turnovers. Our average resident is 34 years old.
They've been with US on average 28 months and so over that 28 months period I can guarantee you that they've gotten a few raises their positions have improved so income growth is a huge driver of potential pricing power and we as you can see in our G&A number we're handing outrage.
And Thats, what it takes and then if you've hired anybody lately, you've probably been a little shocked at the sticker. So wage growth in America, we haven't seen those type I can't remember ever seeing this type of.
It's moving.
I think that embedded resident who's been with us for three or four years has done really well.
And has the ability to pay these higher rents.
And that's hard to capture their real time database.
Got it thank you very much.
Our next question comes from Joshua <unk> with Bank of America. Please proceed with your question.
Hey, everyone I wanted to explore a similar topic.
In the opening remarks, you mentioned that.
Renting across your portfolio or within your market says I think 45% cheaper than owning across those markets I guess, what's the long term average, but maybe how should we read into this does this imply we'll see kind of rents kind of.
Keep climbing so you get to that more normalized level or maybe it's just not even mean reverting.
Thanks.
Yes.
Thanks, Josh.
Long term average is plus or minus 35% cheaper when you look across our markets and that's really looking at kind of a trailing 10 year type of number. So I think when you get to these levels of extremes. Yeah. We go back to financial crisis, when homeownership picked out around 69 drop into low six days and so you went from a homeownership.
Into more of a renter ship in terms of household formation and so I think if you use that as an example, I think it bodes well in terms of as new household formations are formed.
Retro ships should gain more than their fair share of that housing demand itself.
That's another tailwind as we kind of head into 'twenty, three and look at population growth income growth hopefully improved immigration policy.
Relative affordability piece definitely tilt in our favor and so I think it's just more of a long term benefit for us hopefully.
Okay, and any particular market kind of stand out to you.
If you look at it on a market by market basis, or just portfolio a lot.
Yeah.
<unk>.
Both individual markets and obviously from a bigger picture portfolio perspective.
It's interesting when you look at some of the coastal markets.
That dynamic has actually improved a little bit versus long term averages. So coastal markets always are significantly more expensive to own and rent.
And Thats why I moved to even a little bit more so than the average in terms of renter ships favor.
And then if you go down to some belt.
Still has improved but probably not quite as dramatically.
And we're getting a follow up call.
It kind of go market by market.
It'd be interesting thank you.
Our final question comes from the line of Conor Mitchell with Piper Sandler. Please proceed with your question.
Hi, Thank you. Thank you for taking my questions. So I have two questions.
First though are you running at about 97% occupancy and recently raised $400 million.
Both of which sound like positioning the company for a potentially tougher types of head at.
At the same time, you guys sound enthusiastic on new investments. So can you help us understand are you leaning more towards.
Offense or defensive position.
Yeah, Hey, John It's Joe.
I definitely wouldn't say that the raising of equity signals that we're positioning for more defensive times ahead.
If you go back to what we did last year, where we issued 1 billion plus of capital on that.
Sure.
Third party transactions.
We did that because we had a good cost of capital and the opportunity set that was accretive for investors.
Those assets now that we bought.
Low fours.
They grow over time on a mark to market basis.
Mid to high fives yield at this point in time so.
That's done fantastically, well I don't know if this next round of capital deployment is going to be quite as accretive.
We hope that it will we've got a lot of unique value creation drivers when we find the opportunity set out there which at times are difficult. It takes a lot of effort, but if we can find them then we're more than happy to raise that equity.
I think on the 97% side.
I don't think that's necessarily a defensive mechanism, we've consistently run above 97% over the last several years.
Early in the Covid crisis.
We think we can actually run higher than that over time, you look at what we're doing in terms of try and compress vacant days and how we're trying to retain more residents through the customer experience and then continue to augment and reengineer. The pricing engine. We don't see why that number doesn't actually go higher or not actually sacrificing anything on the rental revenue side and so.
I think that number should tick higher over time, so definitely say, we're not positioned defensively.
That said, we're very cognizant of the rest of it are out there right now.
Okay. Yeah. That's helpful. And then my second question is.
The apartment community, it's been pretty well organized in California to advocate for open markets and against rent control are you seeing this banding together effort and other markets like New York Boston.
D C et cetera to advocate similarly.
Yeah No. That's a good question. This is Chris I mean, obviously CA is very well funded they're very well connected they are probably the preeminent organization apartment organization.
State level around the country.
But you see a lot of cohesion and the state of Washington. For example, you mentioned New York with either revenue year RSA.
Lot of the large players.
Advocate with them with their dollars with our time, all that kind of stuff. The exact same thing down in D C, Maryland, Florida, and I think all of US are very involved really in every market and it's different in five to 10 years ago 10 years ago. If you thought about things like rent control just cause eviction.
Et cetera.
A number of states largely in the Sunbelt that you just didn't even ask to pay attention to.
That has changed and we're not seeing a lot of action in those states yet.
But there's definitely more discussion on that topic. So yes. We are heavily involved all of our public peers are heavily involved and once again you know.
We have to keep on educating people decision makers the voters about why rent control is not the most effective way to address affordability issues.
Alright also helpful. Thank you.
Okay.
There are no further questions in the queue I'd like to hand, the call back over to chairman and CEO , Mr. Toomey for closing comments.
Thank you for all of you and your time and interest in UDR.
It off the call with the strongest operating environment in my career and I cannot reemphasize that this is.
One yes. It is the strongest no question about it but looking over the Q&A and the topics. We appreciate all of your interest and those questions.
I see a trend towards what are the short term.
Aspects of our business and how is it performing and we can appreciate your interest in that level, but I also think it gives us an opportunity to focus on what's the long term value creation and the industry is in great position a lot of participants are doing very well, creating a lot of value and as we.
Look at UDR and its uniqueness and how we can sustain that and provide exceptional returns.
It always starts with the culture of the enterprise and the culture is very strong and we've done come through Covid and prospered well during that environment.
It also the processes that we use bold decision, making disciplined and data.
I think the things that make us unique and different is our innovation, our technology being applied and delivering margin advantage.
And lastly, having a broad set of opportunities and value creators, rather that's market exposure or different programs to create value through all cycles.
That is the value of an enterprise if they can manage all cycles and continue to create value throughout.
Thank all of my Associates Fellow associates.
Strong quarter, we're approaching as prime leasing season, and excited about it what the platform is going to be able to do and continue to grow and with that I'll close and say, we look forward to seeing a lot of you at NAREIT in a few weeks.
Take care.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Uh huh.
[music].