Q2 2022 UDR Inc Earnings Call
Greetings and welcome to Udr's second quarter 2022 earnings call.
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 senior director of Investor Relations Trent Trujillo. Thank you. Mr. <unk> you may now 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 measure in accordance with Reg G requirements.
Statements made on 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.
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 second quarter 2022 conference call.
Presenting on the call with me today are senior Vice President of operations, Mike Lacey.
And President 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.
Let's get started.
We continue to be in the strongest operating environment I've seen over my tenure in the multifamily industry.
This is largely driven by the strength of our customer relative affordability among housing options.
And steady near term supply.
This combined with ongoing accretion from our well timed 2021 acquisitions and D. C. P activity drove our strong quarterly results, including a 16% year over year increase in F. F. L. A.
And led to our second guidance raise this year.
Still we are aware of the underlying economic crosscurrents that support our business and how they may impact the results in the near term.
We believe UDR is well equipped to manage this environment based on what we can control specifically first our.
Our diversified portfolio as defined by geographic mix and portfolio quality and location within markets.
Should provide some level of risk mitigation.
Our ongoing innovation will continue to drive relatively better margin expansion and drive more accretive dollars to the bottom line irrespective of the macro environment.
<unk>.
Our anticipated 'twenty 'twenty three revenue growth earn in.
5% is about four times the average earn in over the past decade.
Fourth our balance sheet in excellent shape with plenty of capacity to invest in highly accretive opportunities.
And last compared to prior periods of economic uncertainty, we have a lower leverage profile higher liquidity and minimal debt maturities over the next three years.
Yeah.
Well not in our direct control.
There are also a favorable conditions that are supportive of the multifamily industry, including first shelter as a necessity and multifamily rentals continue to screen incredibly cheap versus housing alternatives. Despite the exceptionally strong effective rent growth our industry continues to <unk>.
Realize.
And second wage growth remains strong.
Employment is historically low and employers may be less willing to lay off employees during a potential downturn.
Given the ongoing challenges of finding skilled labor.
All in our growth prospects for the remainder of 2022 and into 'twenty. Two 'twenty three are very strong.
These tails wins combined with our leading operational capabilities and innovation, which Mike will further detail in his comments should drive incremental margin expansion higher resident satisfaction and more value from our real estate.
Moving on we continue to build on our position as a recognized global leader in ESG.
With the hiring of Patsy door.
As Udr's, Chief ESG, and people officer, and our commitment to the science based targeting initiative.
To reduce our carbon footprint.
We are focused on continuing to be a leader.
On ESG.
Furthermore, during the quarter, we appointed Joe Fisher to the role of President in addition to his responsibilities as CFO .
Joe's promotion reflects his strong leadership and ability to consistently create incremental shareholder value.
In closing I remain very optimistic on the resiliency of the multifamily industry and know we have the right team in place to deliver best in class results.
Moving forward, we will continue to base, our decisions on data and adjust our tactics.
To maximize our competitive advantages, while delivering value to our stakeholders.
I. Thank all my fellow UDR associates for their effort to demonstrate on a daily basis.
Your commitment and dedication to drive our innovation culture.
And the success, we enjoy together with that I will turn the call over to Mike.
Thanks, Tom to begin strong same store cash revenue and NOI growth of 11, 4% and 14, 7% accelerated sequentially by 60 70 basis points and above our expectations.
Key drivers of these results included first effective blended lease rate growth accelerated more than 300 basis points sequentially to 17, 4%.
This resulted from the differentiated pricing strategy, we implemented earlier in the year, whereby we have traded 10 to 30 basis points of occupancy to drive rental rate growth and improve our 'twenty 'twenty three rent roll.
And second annualized resident turnover ticked up year over year to 50%, but of the 16% of residents that moved out because of rental rate increases.
We released those apartment homes at an average 30% higher effective rate.
This enabled us to capture embedded loss to lease quicker than normal.
Highlighting our rationale for allowing turnover to increase.
This approach of focusing on rental rate growth has maximized 2022 revenue growth and we anticipate a 2023 earned in a 5%.
This is the highest earning in our history is.
Is double our previous high which we achieved coming into 2022.
In his nearly four times the average earn in over the past decade.
As is clear from the regional results we reported.
Strength was broad based.
Sunbelt markets continue to demonstrate phenomenal growth.
West Coast markets, such as Los Angeles, and San Francisco as well as East Coast markets, such as New York were among our leaders and year over year growth.
Currently same store revenue growth drivers remain robust.
Blended lease rate growth is expected to be roughly 16% in July with new lease rate growth of more than 17% and renewals of approximately 15%.
While we expect tougher comps on new lease rate growth in August and September due to the exceptionally strong results from a year ago renewals have been sent out and instill a strong pace of 11% to 12% for these two months.
July resident turnover is higher year over year, given the loss to lease trade, we've been willing to make.
It remains below historical seasonal averages.
And occupancy remains high at just under 97%.
Portfolio wide market rent growth was five 2% from January through June .
The highest over at least the past decade, and 120 basis points above historical norms.
Looking ahead, we expect to see more seasonal market rent growth trends as we enter the back half a year.
But the strong first half growth should continue to drive above average sequential growth through year end.
Moving on.
We continue to assess the physical health of our in place and prospective residents given the evolving inflationary environment.
Thus far our leading indicators continue to suggest durable strength near term fundamentals.
First <unk>.
Income growth remains robust, resulting in portfolio wide rent income ratios in the low 20% range.
System with our historical ratios.
We have not seen any material evidence of doubling up.
And residents who turned over had been back filled with rents at higher rates.
Second our in place residents are increasingly paying rent on time.
<unk> rates improved sequentially in the second quarter and long term delinquent continued to decline.
Third traffic remained strong enhanced by the larger funnel generated by our shift to a self service business model.
Fourth.
Concessions are virtually nonexistent with the exception of one week on average in specific Submarkets of San Francisco, and Washington D C.
And last multifamily has become incrementally more affordable first alternative housing options.
It is now approximately 50% less expensive to rent than own across our portfolio.
Versus 35% less expensive pre COVID-19.
During the second quarter move outs to buy a home was only 8% the lowest level we've seen in over 10 years of tracking this statistic.
400 basis points below our historical average.
These factors along with having visibility on 85% of our full year rent roll led us to meaningfully increase our full year 2022 same store revenue and NOI guidance ranges for the second time this year.
We now expect to achieve mid point growth of 11% for same store revenue and 14% 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 12% to 14%.
Which is 300 basis points higher at the midpoint compared to our prior assumption from April .
For the second half of 2022.
We expect blended lease rate growth in the 10% to 12% range.
Second.
We continue to expect occupancy to remain stable at 97% plus.
Were about flat year over year.
And last we expect controllable operating expense growth to be 3% to 4%.
This is 50 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 the inflationary environment higher resident turnover and.
And higher associate compensation to retain talent.
As indicated earlier in my remarks, we are now forecasting 5% earn in for 2023 based on these drivers which assumes market rent growth in the back half of 2020 to follow the typical seasonal trend said.
Said differently.
We would expect to achieve 5% same store revenue growth in 2023 based on the leases, we have already signed and expect to sign through year end.
Considering annual historical market rent growth averages three to three 5%. We believe there is further upside to this number in 2023, depending on the macro economic environment.
That said the Ford regulatory environment remains a wildcard.
Collections are incrementally improving and our long term delinquent residents are slowly declining.
But we are approaching the end of government assistance in many states and a macro hiccup could entice regulators to reinvest their COVID-19 playbook in some areas.
Our dedicated governmental affairs team remains closely in tune with any developments and we continue to work with our residents to find the right apartment home to match housing needs.
And economic realities.
Finally, our ongoing innovation continues to drive attractive results and differentiation versus peers.
She foundational technologies, such as Smart home Tech software robotics.
Chatbot proprietary self guided tour and resident apps spatial analysis heat maps and a unique data hub have already been integrated into our operating platform.
These and improve staffing efficiencies at our communities by 40% increased the number of apartment homes managed per employee by 60%.
Improve resident satisfaction by 25% in.
And resulted in controllable operating margin advantage of 325 basis points versus public peers at a similar rate.
Importantly, these foundational technologies have enabled more recent initiatives developed by our innovation team to move from concept to implementation more quickly.
For example, it took us three years to capture the first $20 million of NOI upside from the rollout of our next Gen platform.
Since the beginning of 2022 we have identified an additional $40 million or an incremental 4% of NOI initiatives that we expect to capture by year end 2025.
Examples of these initiatives include building wide Wi Fi visitor parking increasing the number of properties operate with no dedicated on site personnel.
Proving our process to reduce vacant days.
And leveraging big data to make better pricing decisions.
Above and beyond these we continue to make progress on improving the resident experience.
Which we anticipate will contribute far more NOI down the road through additional pricing engine optimization, better renewal forecasting and increasing our share of that resident wallet amongst other initiatives.
In closing I am excited about our operational trajectory a big thanks to the ongoing hard work of my colleagues in the field and at corporate we.
We have plenty more to accomplish but your innovative and competitive spirit drives our continual growth and our desire to further improve how we conduct our business.
And now I'll turn over the call to Joe.
Thank you Mike the topics I will cover today include our second quarter results and our updated outlook for full year 2022.
A summary of recent transactions and capital markets activity.
And our balance sheet and liquidity update.
Second quarter of <unk> as adjusted per share of 57.
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 third quarter <unk> per share guidance range is 58 to.
The 60.
Or an approximately 4% sequential increase and 16% year over year increase at the midpoint.
This is supported by continued positive sequential same store NOI growth and accretion from recent capital allocation activities.
Partially offset by increased interest expense given recent changes in the yield curve.
At higher G&A to enhance innovation and retain talent.
The same drivers led us to increase our full year 2022 F F away and same store guidance ranges for the second time this year.
We now anticipate full year <unk> per share of $2 29.
To $2.33.
The $2.31 midpoint represents a three penny or approximately one 5% increase versus our prior full year guidance and a 15% increase versus full year 2021.
The guidance range increase is driven by a four penny benefit from improved NOI.
All set by approximately half a penny each from higher interest expense and increased G&A.
For same store guidance, we have increased our full year revenue and NOI growth ranges.
125 basis points, and 150 basis points respectively.
The 10.5% to 11, 5%.
And $13 two 5% to 14, 75% on a straight line basis.
In addition, we have lowered our capital uses by approximately $240 million for the year as we have proactively reduced our net deployment strategy and pivoted away from acquisitions and toward higher risk adjusted return in land acquisitions and DCP investments.
While these investments represent smaller dollar amounts versus traditional acquisitions.
Is that the opportunity for future value creation, while preserving balance sheet strength.
TCP investments often provide us with optionality around future purchase.
Well land purchases allow for gradual funding of development starts.
And implementing value creation mechanisms on our preferred timeline.
Other guidance details are available on attachment 14, and 15 D of our supplement.
Next a transactions and capital markets update.
Our second quarter and third quarter to date external growth commitments totaled approximately $550 million and were split amongst acquisitions.
C P investments and land sites for future development.
Our DCP investments are generally funded over multiple quarters. So we were able to match fund our current commitments with $350 million of proceeds from the settlement of $6 5 million shares under our previously announced forward equity agreements and approximately $80 million of proceeds from prior D. C. P maturities.
External growth activity included.
First during the quarter, we acquired a 433 home community in suburban Boston for approximately $208 million at a mid 4% cap rate.
Our predictive analytics framework identified Boston as a desirable market and this property is located proximate to other UDR communities.
These characteristics are similar to the more than $3 billion of acquisitions, we have executed since 2019, where we have expanded yields by an average of 120 basis points to five 7% well.
Well in excess of what the market alone would have provided.
Speaking broadly to the acquisition market pricing.
Pricing on the majority of multifamily deals suggest cap rates are probably up 25 to 50 basis points from recent lows dependent on market and asset quality.
Asset values are largely flat to down 10% versus earlier this year as realized NOI growth has offset some of this cap rate increase.
Second.
During the quarter, we acquired three future development States.
One H and southeast Florida.
Suburban Dallas, and Riverside, California for an aggregate of $135 million.
Collectively these sites are entitled for the development of nearly 1300 apartment homes and represent likely 'twenty, two 'twenty three or 'twenty to 'twenty four starts dependent on market dynamics.
And third.
During the quarter, we committed to invest a total of $100 million into three D. C. P opportunities at a 10, 5% weighted average return.
Subsequent to quarter end, we fully funded an additional $102 million and the recapitalization of a portfolio of stabilized communities valued at $900 million than 8% return.
Because recapitalization of stabilized assets have lower risk profiles.
This is a relatively lower return rate versus our typical DCP investments.
All told.
We continue to have DCP development and redevelopment opportunities into which we can accretively deploy capital. However.
However, volatility in the macro environment as.
He has led to an elevated cost of capital as compared against a couple of quarters ago.
Therefore, we reduced our 2022 acquisitions guidance to $208 million from the previous $600 million midpoint.
This assumes no additional activity in 2022.
Partially offsetting this reduction is a $200 million increase in DCP and land investment.
The balance is comprised of the removal of previously assumed debt capacity utilization, which helps further improve our balance sheet metrics.
Please refer to yesterday's release for additional details on our recent transactions and capital markets activity.
Finally, our investment grade balance sheet remains liquid and fully capable of funding our capital needs.
Some highlights include.
First we have only $115 million of consolidated debt or approximately 0.5% of enterprise value scheduled to mature through 2024.
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 9%.
Second <unk>.
One $3 billion of liquidity as of June 30th which is comprised of approximately $1 billion of available capacity on our line of credit.
And nearly $300 million of unsettled forward equity agreements provides us ample dry powder and strike.
Third our leverage metrics continue to improve.
Debt to enterprise value was just 25% at quarter end.
While net debt to EBITDA was six two times down more than a full turn from seven four times a year ago.
We expect a year end debt to EBITDA and fixed charge coverage will further improve to the mid five times range. After considering our decision to run a capital light external growth strategy this year versus previous guidance.
By year end 2022, both metrics should be approximately a half turn better versus pre COVID-19 levels.
Last.
Our approximately $370 million of developments in lease up have been a drag on 2022 earnings but are expected to benefit future earnings by approximately <unk> <unk> per share based on a six 5% weighted average stabilized yield ste.
The stabilization of these developments should improve our run rate EBITDA and further enhance our leverage metrics.
Taken together our balance sheet remains in excellent shape.
Our liquidity position is strong.
Our forward sources and uses remain balanced.
And we continue to utilize a variety of capital allocation competitive advantages to create value.
With that.
I will open it up for Q&A.
Operator.
Thank you 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 and a confirmation tone will indicate your line is in the question queue.
You mean first start to feel that as you move to your question from the queue.
So we're just going to say, you're using speaker equipment may be necessary to pick up your handset before pressing the star keys.
So we may address questions from as many participants as possible. We ask you. Please limit yourself to one question and one follow up question.
One moment, please while we poll for questions.
Thank you and our first question comes from the line of Nick Joseph with Citi. Please proceed with your questions.
Thanks, and I appreciate all the comments and thoughts on external growth.
As you look at the D C P environments and opportunities today, how has that changed over the last three or six months, just given kind of the lending environment and higher interest rates and some of the other opportunities that may present themselves.
Hey, Doug it's Joe Good morning, So maybe a couple of things because there are some wrinkles within our DCP pipeline and the recent investment activity that you've seen here in this quarter and last.
We are starting to bifurcate that D C portfolio into our traditional investments which are.
As the name of our preferred equity London onto traditional developers and that's all on the assets and then you'll see some of these recapitalizations that have taken place.
Subsequent to quarter end, we had $100 million portfolio deal as well as back in to Q2.
Turkey, we had a the Portland deal. So we are starting to bifurcate that a little bit I'd say on the traditional D. C. P deals you still see plenty of activity and plenty of interest in that space are the returns really haven't moved up meaningfully so they've ticked up a little bit but not as much as a one to one ratio might imply if you've thought about whereas traditional cost of debt.
And so returns, they're still kind of in that 11%, 12% IRR type of range and then when you come over to the recap space. We are seeing really good economics, there and so that space is a little bit different for us and that traditional D. C. D. We're really trying to go after the underlying assets at the end of the day and have the Optionality. In addition to the good returns with.
To recap side, we're just viewing this as an opportunity to get really good irr's on a risk adjusted basis relative to the underlying real estate and so those are generally in that kind of 8% to 9% range of the things that area of the market, that's really come towards us in the last three to six months.
Thanks, and then just on the land are.
Are you seeing any repricing of Blaine just given where construction costs have moved and then how are you thinking about underwriting that development the future developments on some of these land parcels that you acquired.
Yep.
On land no, we're really not seeing much repricing at this point in time traditionally land prices have remained much stickier. So.
So you don't see as much volatility on that side I would say, though that when you look at the land acquisitions that we had in the quarter. A number of these are exceedingly long lead times. So when you look at something like the Riverside transaction. That's a transaction that we wouldn't be working with them for probably five years now with a potential joint venture partner on the REIT.
Bill side, ultimately, we have fixed pricing on our 50% and we were able to buy that out at a discount as well as buyout. The partner's 50%. So some of these are longer lead time in nature.
But overall not seeing a lot of volatility on that land price. When it comes to future starts you know our nearest term starts gonna be Newport village, that's a densification play on a existing asset. So we're probably going to start up that pricing will be 550 $160 million starting in the third quarter for almost 400 units.
As we think about the future starts.
Generally we run was about a 5% contingency for price purposes and risk, but we're also increasing expected pricing by about 1% per month at this point in time in our underwriting for the next year.
So we get that Newport village deal or a couple of additional transactions, we'll be looking at starting in 2023, we think we're pretty well covered from a cost and risk perspective, and that's still allowing us to get to that low fives current yield and a mid to high five stabilized yield on those transactions.
Thank you very much.
Yep.
Our next question comes from the line of Austin <unk> with Keybanc. Please proceed with your questions.
Great. Thanks, guys, Mike you alluded to this a little bit in your opening remarks, but maybe you can put a finer point on and if if we take the 5% earn in and assume that rent growth gets back to historical inflationary levels. In 2023 is it is it fair to say, 7% same store revenue growth is achievable next year, assuming kind of the.
Unmik backdrop doesn't accelerate to the downside.
Also I think that's fair just taking the math of that again that 5% earn and if we can get to a 4% market rent next year use a mid year convention and yeah, you get to 7% pretty pretty quickly that being said I would like to point out we've done a good job over the years of trying to be a little bit more innovative and then nature just.
Going after other income so there are other things out there that we are constantly looking at and again, we have a pretty good pipeline at this point of ideas. So we think that we can continue to push that as well.
That's helpful. Thank you and then I know strategically you guys have tried to draw down on the on your loss to lease, but where does that figure stand today and and also if we do things softened she things soften up a bit do you think the loss to lease that some still have provided a little bit of a cushion.
You know in terms of how how portfolio rents would you know.
Start to rollover or in reality, if demand softens do you think that disappears you know pretty quickly as people look to hold occupancy.
That's the thing with loss to lease you want if you want to catch or why you have it today, we've seen loss to lease continue to go up and last time, we talked of gangrene is around high 9%, 10% range today sitting around eight 5% and again that goes back to our strategy of really driving our rent role and you can see in both our mark.
Rents, how that's played out on new lease growth and really especially on that renewal side, we've been able to push it a little bit more aggressively again, that's leading into that earn in of 5%.
And frankly today, we think we have very good visibility mentioned my prepared remarks.
At around 85% of our leases for the year, because we can basically see what's being sent out through September October at this point, we see where our market rents are going we feel really good about that 10% to 12% that sits out there in terms of blended growth in the back half and so when we sit here and we talk about where we're trending.
We'd have to be zero percent growth in the fourth quarter to really move away from that 5% earn closer to about 4% again right now <unk> looks like it's in the bag, it's close to 12% to 14% today. So we've got a lot of visibility a lot of dashboards out there that we're looking at.
And again it goes back to their innovative approach a lot of green lights, telling us to pushed out so we feel good about where we're at today.
That's very helpful. Thank you for the time.
The next question is coming from the line of Steve <unk> with Evercore ISI. Please proceed with your question.
Mr Secretary there.
Okay.
Hi can you guys hear me.
Yeah, you got it.
Okay, I guess the headset died.
Anyway, just to circle back on capital allocation, Joe I think you said on these new land parcels that you bought that you thought that yields were maybe in the high fives I mean, I think you said your current development kind of yielding six and a half in D. C. P is getting your kind of eight to 10 I'm just trying to think through with with the economy.
Softening and slowing not clear how much I mean, I guess, how are you thinking about.
That capital allocation and and you know, maybe changing underwriting criterias and and you know prioritizing kind of where to put the incremental dollar today.
Yeah. Good questions I'd say first off I think you see within the guidance the pivot that we have from a capital allocation standpoint, so broadly speaking pulling back on capital deployment I would say, while we're not always experts on the macro perspective, I think we are pretty good on dividend and adjusting with cost of capital and knowing when to pull.
Backend really wanted to push forward. So we did net net pullback deployment strategy with guidance now at this point well effectively everything that we've done to date is reflected in the high end of those numbers. So we're not taking into account additional speculative activity from here.
When you do think about that pivot, though the DCP and development I E land acquisitions did tick higher part of the reason we like that is because they are smaller dollar amounts and then they create future optionality in the case of the D. C. P. Obviously, you have better optionality on the backend to potentially monetize them and acquire some of those assets.
We've got about a 50 50, you hit right on that and then development. While we are building up the land bank.
We're not hidden go today, so all of those land parcels in development starts aren't starting in <unk>, we have Newport village here to close out the year. The rest of our starts are really probably going to be 2023 decisions.
We think we've got the land at a good basis, you've got a good price there we feel comfortable with the underwritten yields at low fives low fives on a current basis.
I was on a stabilized basis, and that's factored in contingencies, plus inflation and so it does give us that optionality, though if the macro economic environment continues to deteriorate if cost capital changes I think we'd reevaluate kind of sequencing of those starts and think through sources and uses at that time. So.
Now you've seen most of what you're going to see out of us on the cap allocation side.
Great. Thanks, and then this is a little more of a technical question, if we need to take it offline. We can I'm just trying to think through the bad debt and I know you've got a paragraph in here on page. Two you talked about you know almost $13 million of bad debt recorded in the quarter, which if I'm doing my math right doing the math right its about 3.5% of revenue.
Which just seem like a high number so I guess I'm just really trying to clarify you know what was included in the.
You know second quarter and kind of what's in guidance for the back half of the year.
Yeah, Yeah fair question so.
Number one I hope within these bad debt discussions, we don't lose sight of the broader trend here collections are actually doing fantastic. So June within <unk> was the best month of collections that we've seen since Covid started.
In April and May weren't far behind Us our second and third and then just looking at July we're actually off to a better starting July than we were in June at this point in the month. So overall I don't want any of the kind of bad debt accounts receivable reserve discussion to really masked any of that and happy to take it offline to go through it in more detail, but that $12 $8 million reserve.
The way you should think about the implications to either sequential or year over year is to think about the incremental change in that number.
Not the absolute $12 $8 million reserve, it's just how much did that change versus prior quarter as well as how much did we see is a change for former residents that we'd previously written off and so those numbers on a year over year basis, we had about a 30 basis point drag on our year over year same store revenue and on a sequential basis.
We had about a 90 basis point drag to revenue relative to <unk> and that's really driven by <unk>, we had a increase in collections and <unk> as we saw better previous trends I'd say just as you think about the methodology here, we have had a very very consistent methodology.
<unk> since Covid started in terms of diving into individual resident by resident understand in their own factors understand the regulatory environment, there and even understanding where they're at in the governmental assistance process. So by doing that we get a much higher degree of conviction on where those collections are going to go over time.
Them into our forecast and our reserves, that's why I think you'll see them, probably quite a bit less volatility on a quarter to quarter year over year basis, and you're seeing some of the others at this point in time so.
Hopefully keep them or surprises to a minimum here on our side and I think that's really credit too. We've got some great business managers in the field that are in the weeds on this as well as the regulatory team at corporate that holds biweekly meetings going through those details so but if you want to go through more detail on methodology or anyone else does have to do a follow up after the call.
That's good thank you.
Okay.
Our next question comes from the line of Chengdu Li with Goldman Sachs. Please proceed with your question.
Hi, Thank you for taking my question. So you guys talked about cap rates up 25 to 50, Bips and prices down 10% I said values how much further do asset values start use need to come down in order for deals to resume given given you know NOI is still pretty.
Healthy like at what point.
Do you think its stock.
To because.
More aggressive on acquisitions as we think about this environment.
Yeah, Hey, John it's Joe So are there.
When you look at our playbook here the last three or four years.
Our playbook is really been contingent on whereas our stock price.
Can we go out there find assets that meet the platform requirements the asset upside requirements Capex requirements that we have and can we do that accretively with our share price and so I think our circumstances and what we need to see on cap rates are very different than the market as a whole. So what we're seeing right now is price discovery, taking place for the broader market.
And UDR and the rates are not going to be the incremental price setter in that environment. We don't have a great cost of capital I would say that while theres a lot of focus on cost of debt and how do these different groups finance themselves a lot of our investor base spends a lot of time thinking about unsecured rates, which are higher at this point in time for the routes than the unsecured borrower.
So secured borrowers today, a good quality borrower can borrow on a low leverage basis for three to four five probably based upward treasury rates have moved and so when you think about where cap rates are I think that gives you a sense for kind of what the floor might be so we still got to get through the price discovery phase, but near term I don't think you're going to see much activity out of.
US given cost of capital, even when the stock price side.
Or what we exposed to the box on the disposition side.
That's fair and so in terms of the remaining forward equity capital that you have that's already locked in could you talk about potential deployment. There do you think more DCP opportunities would be the right way to go about that like just if you. Please talk about if you could please talk about your capital allocation priorities.
The next seven to eight months I'm on that father program.
Yeah, it's really identified and pencil them out at this point for opportunities that are already in process uncommitted too. So if you think about our development pipeline today, we've got about $200 million left to fund there.
Our D C. P pipeline, we've got about $80 million left in terms of what you can see on attachment 11, B, but then we had a subsequent portfolio DCP deal for about $100 million, they've got 180 million there plus some additional readout in technology spend so you got 400 plus million dollars of committed spend that we're looking at and so you've got $280 million.
Of funding left to do on those forward equity settlement plus free cash flow plus we are exposing some assets to market to explore pricing and have potential proceeds come in there and so we're not looking at that forward equity settlement as new dry powder or new capacity for additional acquisitions DCP Dev etcetera, it's really.
Now at this point penciled in for what we already have committed to.
Great. Thank you.
Our next questions come from the line of Brad Heffern with RBC capital markets. Please proceed with your question.
Hi, everyone. I was curious if you could talk about any change in behavior that you might be seeing from kind of the deal seeking renters on the coast.
Yeah.
Hey, Brad It's Mike I'll tell you first and foremost we alluded to in my prepared remarks, we are seeing some of the renter base turnover just due to some of the rent increases so when I mentioned that 15% of them left because of the rent increases we were receiving about a 30% increase on new lease growth.
Being said when you look at places like New York as well as Florida for US It was closer to 30% to 35% are moving out because of that and part of that is due to the the concessions, we're giving in that market last year and a place like New York and then in Tampa as well as Orlando is just a little more to tee that being said you can see it on.
Our rent trends new lease growth is still very strong in those markets. So we're actually refilling with people that are able to pay those rents income ratios are staying pretty consistent with what we're seeing and the move in and move outside of the equation very similar to what we saw pre COVID-19, so everything feels pretty healthy at this point.
Okay got it and then Joe is there anything left in the forward guide in terms of rental relief payments or is that largely played out.
There is an expectation that we will have additional receipts on government assistance generally and three Q, we do have a pretty good amount of visibility as to what's an application at this point in time plus what we received in July . So I'd say, you probably have three or $4 million of expectations out there for additional government assistance at this point.
Yeah, Theres still has the possibility of it there's E wrap reallocations. So maybe we have something there that would be an upside surprise overtime. Yeah. There's also discussions taking place in California, and the legislative body as two additional support for landlords for residents who haven't paid but we have not factored in any of those items.
At this point in time.
Okay. Thank you.
Our next question comes from the line of John Pawlowski with Green Street Advisors. Please proceed with your question.
Thanks, just a follow up question on external growth last two or three years acquisitions have been really really tilted towards the suburbs and so I know suburban assets can provide a higher going in yield.
There are just a fundamental call on aging demographics here going in more suburban or any other kind of macro overlay that that's forcing until your portfolio have more suburban.
No there really wasn't we want them to remain balanced urban suburban a b et cetera. It just happens that when we went through all the parameters that we have laid out and we're going through the acquisition process and we wanted to make sure. They were in markets that we had targeted for expansion I want to make sure that we can deploy it accretive cap rates wanted to make sure the growth profile is.
Better than our own portfolio.
There are natural market growth or everything that the innovation and redevelopment capex teams do so they generally just presented the best opportunities. Some of that has to do with the party and aspect we've talked a lot about parting aspects I think when you looked at our 21 acquisitions I think the median distance was about two miles so we.
Did focus a lot on could we get more efficiencies out of an asset because of where it was located we don't get a dictate to the market what comes to market. We have to be a recipient of what we saw come in and took advantage of what we saw it so I wouldn't take that as a broader thematic or strategic shift just happened to be what was available at that point in time that worked with what we wanted to do.
Okay.
Second question for Mike I'm curious what your team on the ground as I. Just told you in terms of June and July kind of leasing trends in tech centric markets, either Bay area or life science clusters in Boston and San Diego.
And any incremental anecdotes layoffs and how that's impacting traffic would be helpful to hear.
Sure John I think specific to San Francisco first.
I pointed to a five 2% market rent growth as a whole for the company in terms of cumulative sequential market rent growth. When you think about San Francisco, we are around 13% to 14%. So we've actually seen more market rent growth concessions starting to abate even more.
See about two weeks downtown two to four weeks and kind of mountain view area because of supply. So frankly, we've seen more traffic in San Francisco, our turnover has been relatively kept in check and we feel better about our market rent today than you have in a long time, and we're actually back to call. It pre COVID-19 numbers at this point and we.
We have more of a.
Tailwind if you will going into next year because of where market rents have moved just in the last six months.
San Diego, obviously, we have a very small presence there still seeing.
Good trends turnover staying relatively low basically no concessions and so we're not seeing much of a dip there and then as far as Boston as you can see in our release Austin performed relatively well for us and we actually expect to see even better numbers come out of Boston over the next two quarters.
Hey, John It's Joe.
We'll have additional thoughts too because we get the questions back to June NAREIT.
Some of the notes on the detect.
Either layoffs or pausing of hiring I do think it's important that while those get plenty of the headlines we're seeing the same announcements and other industries as well and so while job openings. Overall remained very strong job growth remained strong I do think that a little bit of rate of change deceleration. We're seeing it as more broad based on just tech where we see the headlines so it doesn't seem to it.
And Francisco is going to bear the brunt of it just because of that or because of the fact that the jobs did get more dispersed in the tech industry throughout the downturn. The other thing anecdotally that we keep hearing is that any of those announcements that you're seeing on the tech side. They do seem to be driven by more of the support so be it the sales more of the back office more of that helped.
There's lots of the technical higher paying jobs that are out there it seems to be what we're hearing behind the scene. So I do think there's that wrinkle as well, but the higher income is still there and so you're not wasn't that multiplier effect on the high income jobs.
Okay understood. Thank you very much.
My next question is from the line of Adam Kramer with Morgan Stanley . Please proceed with your question.
Hey, guys. Thanks for taking the question I guess first question is just on it and look at really appreciate kind of the detail around you know the earn in number one and then kind of expectations for market rent growth for kind of giving us some building blocks for 2023 I.
Just wondering kind of on top of the 5% earned in you know kind of a 3% or so of market rent growth potentially you.
You know what that was kind of me me kind of go into the Blender right. What are the building blocks might there be right and you know whether that's development I know, we talked about bad debt earlier, maybe kind of how do you see bad debt playing out is that a headwind or tailwind and maybe kind of help us help kind of quantify what some of those other building blocks of 23, maybe.
Yes, Adam it's Joe.
Yeah, we talked about bad debt, a little bit I don't think we're going to see a material change at this point in time as you go into 'twenty three we still got some issues with eviction moratoriums and slow to open courts or pauses on eviction processes that make it more challenging a lot of that is weighted more to the west coast with Northern California L. A.
In San Diego, all having various forms of eviction moratoriums in place.
So I don't think youre going to see a big shift in 2023 numbers coming from that side of the equation. You did mentioned one of them, where we do think we have a lot of upside both next year and in the following years is on the development side.
Those deals called before lease up deals roughly $370 million.
And effective yield right now.
Plus or minus 2% as they come into the lease up phase and come off of cap interest those are going to go to about a six 5% yield over the next couple of years and so you've got five pennies of upside. There. In addition on the D. C. P side, you've seen our new commitments both in <unk> and subsequent I think that will earn in a little bit this year, but as the funding schedule to come.
Going to come out and continue to come in throughout the rest of this year, you'll see the full impact next year. So I think D C piece sets up well.
For us from an accretion standpoint on the acquisition side, while we just had the Boston deal that we announced this year, we still do have upside remaining on those 2021 transactions and so those should help as they come into the same store pool.
The thing Thats not necessarily additive, but it's less dilutive I think for us than peers is when you look at that maturity profile we.
Done a phenomenal job over the last couple of years, extending duration and really knocking out most of our maturities through 2024, we only have $100 million coming up over the next three years and that's out in I think July 24, and so we're gonna have less where you say reset risk on the debt side.
On the flip side to be fair, we do have G&A and.
And broader expense pressures that we're faced with so in terms of retaining talent continuing to add head count around a lot of our innovation and ESG activities I think youre going to be due for another tough year of G&A and expense growth, but that said, we do have a lot of efforts on the initiative side that Mike's focused on that.
It should help on both expenses and revenues to help boost some of that revenue and NOI growth in 'twenty, three and 'twenty four.
That's really helpful. Joe. Thanks, Thanks for that color I guess, just a second and you know quick kind of follow up questions. Just you kind of mentioned earlier, 11% at midpoint for kind of second half of 'twenty two blended rent growth wondering kind of within that number if you're able to kind of say you know hey.
Where do you think kind of at year end that number sits right. So I recognize that's kind of the average number do you think kind of blended rent growth.
At year end is still kind of in the positive range I'm just trying to think about right. You know the comps kind of getting increasingly tougher here as we get through the year. So I'm just wondering kind of how you guys are thinking about for forecasting kind of yearend yearend blended rent growth.
Sure No Adam that's a really good question, it's something as we think about that 10% to 12%. We expect in the back half again, we have very good visibility on basically <unk> at this point that I mentioned earlier I do expect anywhere from 12% to 14% growth based on everything I can see today, whether it's been signed or whether it's sitting out.
There I noticed it looks like it's in that 12% to 14% range. So that would lead you to believe that the back half the fourth quarter. If you will is around 7%. So we do see some positive momentum as we end the year going into next year and we'll continue to try to drive that higher obviously, we've been very focused not only on 2022.
A lot of that has been based on how we can build that run in for 'twenty. Three so that's kind of where we sit today.
I do think it's important within that we do get a lot of questions on the affordability of dynamic and the wherewithal of the consumer it's important to keep in context that while these rent increases year over year feel relatively large if you go back to 2019 and look at where income growth has been throughout our markets.
Income growth has averaged four 5%, which is effectively right in line with where our rent growth going back to 2019 baseline has been with market rents up today at 15, 16% within our portfolio versus pre Covid and so that's why when Mike talks about rent to income ratios, we're still holding relatively static in that low 20% range and so consumers still in a really good position.
Wage growth has continued in those mid single digits and even when you look into new move in activity in <unk>.
When it comes for those residents relative to the residents that are we're applying for last year those were up high single digits greater than the market as a whole so we're attracting a better higher quality residents today.
I appreciate all the color guys. Thank you.
Thanks, Adam.
I misread by the way on these calls.
The next question's from the line of Neil Malkin with capital One Securities. Please proceed with your question.
Hey, guys. It's unfortunately, not Richardson Neil so.
[laughter], Yeah, just kidding of course.
Question.
[laughter].
So funny, Okay, excuse me and Mike you talked about I believe you correctly then over the next I think Judy.
Or the last couple of quarters that number was 20.
Hum.
If I'm wrong, let me know if not can you just talk about what new or.
Initiatives have been sort of added to the near term docket.
And and you know kind of what are those targets.
Danielle so in terms of that number the 20 plus million dollars of initiatives that still holds steady so we're going to probably pull of about $6 million of that into this year's number and so that leaves anywhere from $15 million to $20 million of additional initiatives as you think about what's out there and what we can still go.
Laughter.
There's a number of items within that anything from third party parking additional package and placement there there's identity fraud detection, we're rolling out AI chat bots text voice throughout the portfolio.
There's a bunch of vendor consolidation theres more centralization and sites that we're gonna run without individuals' onsite on a daily basis. So a lot of initiatives within that 20 plus million I'd say, the big new item that we have been vetted with the innovation team here for a while but we are in the process of rolling out over a three year time.
<unk> yeah.
Is building wide Wi Fi.
And so with something that we've looked at for the last five or seven years and of course, there's questions. As to you know are we late to the game why are we not done the bulk internet in the past when others have on both Internet and cable I think theres a number of things that actually have changed over time for us that make it a more interesting for us to rollout today. So.
Number one this is not going to be a cable and internet package. We are looking at Internet only we don't view those past packages that included cable as being beneficial to the resident.
The contract duration that we're looking at is much shorter than the typical contract typically those are seven to 10 year contracts. We're looking at a five year contract to present us with more optionality today.
But when you think about the Wi Fi experience for the resident very different today and that historically, it's just in a in unit setup and that you only have Wi Fi in unit, we're looking at ubiquitous or whole building Wi Fi so that when you walk out or your unit you have it throughout the portfolio. So you're going from your unit to the garage too.
Full to the amenities.
So it's a much better tenant experience the.
The other thing is that we have a much greater Rev share that what has historically been offered historically, we were offered a very high fixed price with an inability to control pricing for that Wi Fi. So a very small rev share and little control over what our profitability was because we are going to take control of the capex rollout and the cost on that.
Over the next three years, we're going to take the lion's share of the revenue off of this and drive profitability pretty substantial and so.
In totality it helps us create a better customer experience. It helps us transition from what I'd say is a smart home concept to a smart building concept and that's really foundational for what we have to do S. P. T. I E S G and attacking that scope three perspective, given the power back to the resident to understand the dynamics in their unit and throughout the portfolio are proper.
So total numbers were probably looking at about a $50 million spend over three years for this well returns probably $15 million to $20 million plus is what we estimate.
But full rollout potential by 2025, so it's going to be a couple of years.
So long winded answer to that innovation question of $20 million, but reduced it up to at least 40 million a day and still have more to come but the innovation team is working on.
Well I really appreciate that thanks, that's the one time.
Pretty quiet, maybe a general question I've asked you a couple of times.
Think about where you guys have been you know positioning incremental buys.
You know kind of seeing what what the markets have bare it out in terms of our rent growth on both on a year over year and you know COVID-19 to date basis in.
You factor in the hybrid model for them to be a long term.
The paradigm.
When people moving to states with.
Less regulation less issues more affordability you know the list goes on right social issues et cetera, I just wonder now that we've had.
A fair amount of time to kind of suss out how that kind of looks and potentially.
Potentially a new framework if at all are you you know.
It is the company may be taking a dip.
Arent stance.
On on how you are positioning the portfolio.
Portfolio I understand diversification is important to you guys that get that but you know based on everything we know what's in 2020 do you feel like the.
An incremental dollar is better spent in a sunbelt market.
Yeah, how do you kind of see that now that you've had some time to digest that.
You know Neil a very good question and a very thoughtful one and a perspective of what did we really learn from COVID-19 in the last three or four years and what I think we learned.
Phil applies to the future, which is diversification is your friend in managing risk and cycles political.
Environmental whatever they might be and so you're probably right. We will always continue to focus on it when I'm grateful for is our <unk>.
Men and technology and portfolio management and data.
And Chris and the team continue to pour through it fine better datasets to analyze trend lines, where things are and I think the conclusions of that we continue to share with the investment community.
Every conference.
And what they point to is we're in the right markets.
Things are going in the right direction and if we continue to operate grow our margin. We're gonna have cash flow growth in the enterprise is going to continue to prosper and I think we'll stay on that template I think it's challenging as we've all seen to lift portfolios and ship them.
Hell I had 10 years of experience with that and it's hard to get earnings growth and expansion.
And so we.
We're very comfortable with the portfolio probably won't see a lot of shifting of markets. We continue to always look for new opportunities and.
A long winded answer we like our hand at the table and we're going to just keep playing it and continuing to expand our innovation and margin.
Alright. Thanks.
The next question is from Atlanta, Juan Sanabria with BMO capital markets. Please proceed with your question.
Hey, guys.
Just a question on the cost side is there any.
Change in the magnitude of growth on the costs either on the controllable or not you're seeing between Sun belt and coastal markets.
That that is worth noting.
Well I think worth, noting I would I would say in the sunbelt, we're seeing a little bit more pressure as it relates to some of the R&M side of the equation as well as the personnel and I think a lot of that has to do with the supply that's down there. So typically when that happens it's pulling some of our service employees from us.
And we're having to pay a little bit more to retain our talent and we're seeing it just in terms of some of the third party costs being pushed to us as well, so that's where I've seen a little bit of pressure on the controllable side, but nothing really else material. When you think about just urban suburban a b's it's pretty consistent.
Well I think you can extrapolate that on the controllable side, a little bit to the non controllable over to real estate taxes, well, we are seeing more pressure. When you go into some of our sunbelt markets be it, Texas, and Florida, Richmond, Virginia, We are seeing more pressure on the tax side, there relative to some of the coast. Similarly, if you can.
Full cycle back to a discussion earlier on the development side you are seeing more inflationary pressure is really driven by labor down in the sunbelt as well there so little bit more pressure on cost and development within the sunbelt two so broadly speaking sunbelt to seen a little bit more pressure.
And one more for me just on the whole discussion about assume blended lease rate growth in the second half of the year and you guys are giving phenomenal.
Any offset we should be thinking about as you drive pricing on it.
Continued occupancy kind of get back a bit higher churn is that gonna stay stable or it'd be ticked down for the balance of the year.
Another good question by the way we've been looking at that and trying to communicate is we've been comfortable with call. It about 30 basis points of occupancy coming down. So we typically run just over 97% today today, we're closer to 96, 8% to 97%.
Again, it's a good trade if you think about 30 basis points for us its 150 units per month, and we've been targeting over the course of <unk> and <unk> run. It this way try to push our rent deal. We can get we do expect vacancy loss of approximately $2 million.
That being said, we do think we get around one to one 5% pick up in rents.
Over the course of 12 months for us on our rent is over $12 million. So it's a good trade and again, it's one that we've been focused on doing that.
Try to drive next year. So 2023 are in very good shape.
That's kind of where we're at on that.
Great. Thank you very much.
The next question is from the line of Joshua <unk> with Bank of America. Please proceed with your question.
Yeah, Hey, guys.
It was interesting you named the patios are cheap, yes, Chiapas or just.
I'm curious where her focus will be in the first 12 months on the ESG crop.
Yeah.
Hey, Josh good question.
Very excited the fact is joining us. So if you had a chance to look it up and take a look at her background absolutely phenomenal experience in the areas of ESG sustainability D. I talent development. So.
There's a lot of areas that she's going to be able to help she's been at some pretty big dynamic organizations in the past and so they get near term there's definitely a focus on our on the ESG side. So we've committed as you know to S. P. T I and so she'll be helping us with that along with a number of other individuals on the ESG Committee.
Working through our <unk> strategy and the ultimate communication and execution of that I think there's a good opportunity from a workforce diversity standpoint, we do have a D. I initiatives in place for the executive team was compensation tied to them. So they can share that we continue to drive those efforts to enhance and diversify our workforce.
On the talent development side, just continuing to extend the HR strategy, that's already in place and making sure we get good high quality talent in here develop them over time and bring them up through the organization. So she's got a pretty phenomenal skill set and so excited to see what she's going to bring to the table and are bringing new boats to us Josh.
Josh This is Tony I might add that you know.
We've got an 86 last year on grasp led the industry very proud of that but the time to get better is when you're on top.
And I think Pat seek and drive us to another level.
Yeah.
Awesome.
Yes, I'll leave it there thank you.
The next question is from the line of Nick <unk> with Scotiabank. Please proceed with your question.
Hey, it's Dan Chicago on for Nick I'll keep it brief I don't believe you start any new developments in the quarter and how should we think about the development start pipeline over the next say 12 months and how are you underwriting new development yields today versus cap rates.
That's correct, we did not have any new starts in the quarter. So we've got the $700 million pipeline about $200 million left to fund.
But really for those deals out of the seven are coming through the lease up and effectively fully funded and so you are really down to a relatively de minimis amount of risk when you think about Watson process today.
In terms of new starts and <unk>, we're gonna have Newport village, which is the Densification play almost 400 units that are 150 $560 million development deal in suburban D. C and so that will get in the process in the second half.
Beyond that we've got really good optionality as we think about the pipeline. We do have a broader strategic objective to get back to plus or minus $1 billion pipeline, which sizing wise is only about three or 4% of enterprise value.
We do want to get back there over time, but that's going to be very much contingent upon where do we looked from a sources and uses macroeconomic environment and cost of capital perspective. So we've got the Optionality. When you look at attachment nine with a number of land parcels that will be able to start next year.
But those are going to be contingent on all those other factors and so it's hard to say that we're going to move forward on exactly the same timelines as we previously planned.
We do have that optionality.
Thanks, Joe I appreciate it.
Okay.
The next question is from the line of Handel St Juste with Mizuho. Please proceed with your question.
Hey, I guess its good afternoon to you as well.
So did I hear you say.
I think Mike you said that move outs due to rent levels in certain sunbelt markets were in the 30% range or about to enter the portfolio.
Can you share a bit more about where that is happening in your comments you made it sound like this is a lucky because the deal seekers.
Rotating out I haven't been able to backfill with higher income tenants.
Yeah.
That's what I was mentioning if you look at a place like New York for example, our renewal growth of 21%, we were pushing pretty aggressively and that was the case, where people were getting more of a deal over the last couple of years with concessions. We burn off those were not offering concessions in that market anymore, and we've continued to push market rents.
So we have the strategy in place at the beginning of the year to see what we could get on that we think it's played out we did see turnover tick up to some degree, but again, we were able to trade out at call. It 30% on the newly side. So it was a good trade for us.
Places like Florida, that's where we saw it as well where we'd start to push and this is more of a function of we pushed last year, we're starting to anniversary off that and seeing it again this year and some some residents just couldnt take that increase and again, we were able to backfill with higher new lease growth and what we're seeing in terms of rent income ratios.
The relatively flat. So we are seeing people with higher incomes the ability to afford it going forward and we think that we have good prospects as we move forward.
Okay. That's helpful. I appreciate that I guess, you know, we're all trying to figure out to a degree of affordability is an issue is it your sense that pricing power is still fairly even across the sun belt in coastal markets and then maybe how does the rent to income ratio within those two regions can air.
They may be versus history.
Sure would that question I'd, probably point more towards our loss to lease and you've seen us in previous pitches.
Your own out there where we're at by region I would tell you when I mentioned eight 5% across the portfolio today, it's pretty consistent so we're starting to see a little bit of an increase in that loss to lease in places like San Francisco, giving them have been able to push market rents, but again, it's pretty consistent across the board.
Haven't seen much of a change there.
As far as as far as that goes.
Any color, perhaps on the rent to income is there a meaningful difference between coastal in the book.
Minor not very material, so where we see a little bit more of a an increase if you will place like Monterey Peninsula for US historically, that's run in the high Twenty's. It Hasnt changed to some degree places like the Sunbelt, we're around 23% to 25% today New York.
Just under that so they're pretty consistent across the board.
Yeah.
Okay. That's helpful. Thank you guys.
The next question is from the line of Anthony Powell with Barclays. Please proceed with your question.
Hi, Hello, you mentioned, a few times that you're attracting as higher income tenants as you seek to raise rents do.
Do you think these tenants may be newly priced out of the home buying market and if it becomes easier to buy home would these be something in the first tenants I mean about for homeownership.
Not necessarily because that's another thing that we track and we've been looking at is the average age of our residents and that's actually kicked down to some degree so while it could happen maybe but we feel like we're in a pretty good place and I mentioned in my prepared remarks, we've seen around 8% moving out to buy homes.
So we're in a pretty good place today compared to historical averages.
Thank you.
The next question is from the line of Tayo Okusanya with Credit Suisse. Please proceed with your question.
My question has actually been answered thank you very much.
Thank you there are no further questions in the queue I'd like to hand, the call over to Mr. Toomey for closing comments.
Thanks for your time and interest in UDR, we started off the call with.
A quick summary of the strongest operating environment in my tenure.
16% <unk> growth year over year.
Second in guidance increase this year.
We appreciate the questions, but the big picture is our consumer is in great shape, and we reloaded our rent roll we have pricing power.
We continue to innovate and expand our margins.
And it couldnt be a more exciting time to be in this business the prospects look great today and in the future. So with that I'll close and say, we look forward to seeing you in the September conference season.
And wish that all of you take care.
This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.