Q4 2022 UDR Inc Earnings Call
Speaker 2: The but.
Speaker 3: to the UDR-Ink 4th quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker 4: It is now my pleasure to introduce your host, Trent Trujillo, Director of Investor Relations. Thank you, Trent. Hi, everyone.
Speaker 5: 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.udr.com. In the supplement, we have reconciled all non- GAAP financial measures.
Speaker 6: based on reasonable assumptions, we can give no assurances 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.
Speaker 7: When we get to the question and answer portions, 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 in CEO Tom Tumey.
Speaker 8: Thank you Trent and welcome to UDR's fourth quarter 2022 conference call.
Speaker 9: Presenting on the call with me today are President and Chief Financial Officer Joe Fisher and Senior Vice President of Operations Mike Lacy who will discuss our results.
Speaker 10: Senior officers Andrew Cantor and Chris Venenz will also be available during the Q&A portion of the call.
Speaker 11: To begin, 2022 was an exceptional year for UDR.
Speaker 12: First, our same store revenue growth was near the top of the sector and we achieved record high full year same store NOI growth of 14% and FFO a per share growth of 16%.
Speaker 13: Second, we further advanced our already industry leading operating platform by investing in our people, which included establishing a 16 person task force to generate and execute innovation initiatives.
Speaker 14: Additionally, we engaged in various prop tech and climate tech investments. Together, these resources should further expand our peer-leading operating margin into the future.
Speaker 15: Third, we adhered to the capital market signals growing opportunistically when our equity was attractively priced early in the year and actively pivoting to a capital-light strategy when our cost of capital increased.
Speaker 16: Being a good steward of your capital is paramount.
Speaker 17: Fourth, while we had next to zero debt maturities in 2022, we continued to reduce leverage, strengthen our balance sheet, and enhance our liquidity.
Speaker 18: And last, we were honored to be recognized by a variety of organizations for our ongoing commitment to our associates, stakeholders, and the environment.
Speaker 19: These include, UDR earned a five-star ESG designation from Gresby, the highest rating possible.
Speaker 20: The company was named by Newsweek as one of America's most responsible companies for the second year in a row.
Speaker 21: And in institutional investors recognize our ESG program, our board, IRR team, and numerous executives being top three in their respective categories among all US REITs.
Speaker 22: In short, we have the right strategy and leadership in place to continue to propel UDR forward.
Speaker 23: Looking ahead to 2023, we are very aware of the wide range of economic scenarios that are forecasted to play out.
Speaker 24: but we build our strategy around diversification and the ability to perform in any environment.
Speaker 25: This is well demonstrated by our history of cash flow growth and TSR outperformance, specifically an 11% TSR.
Speaker 26: compounded annual growth rate over my 22 years at UDR.
Speaker 27: The constant over this time is our focus on what we can control and how that sets up for relative long-term outperformance.
Speaker 28: This includes first
Speaker 29: the strong relative setup of US multifamily industry.
Speaker 30: Housing is a needs-based business, supply is stable, demand and traffic remain healthy, job growth has remained positive, rent to income levels are steady, and relative affordability versus single-family ownership and rentership remain near all-time highs.
Speaker 31: while the cost capital across the industry continues to improve.
Speaker 32: Second, the favorable setup for UDR within the industry.
We entered 2023 with approximately 5% earnings, the second highest amongst our peers and the highest in UDR's history.
initiatives and prudent capital allocation should enhance this growth through margin yield expansion.
Furthermore, our balance sheet remains highly liquid with $1 billion of capacity and we have no debt maturing until 2024.
And finally, we increased our dividend by a robust 10.5% this year, enhancing our already strong returns profile.
Taken together, we feel confident that we will effectively manage whatever macro environment we face and continue to produce strong absolute and relative results.
In closing, I'm very optimistic.
on the relative strength of the multifamily industry and UDR's relative advantages within the industry.
We have a strong talent experience and innovative team with a track record of strong relative performance.
the key that unlocks our potential.
is our drive to continue to listen to our associates, our customers, and stakeholders, which enables us to determine where we excel.
where we can improve
and how we can better innovate for the future.
To my fellow associates, thank you for all you did during 2022 again to make UDR a successful year.
and I look forward to what will come in 2023.
With that, I will turn the call over to Mike.
Thanks, Tom. The topics I will cover today include our fourth quarter same-store results, early 2023 trends, our full year 2023 same-store growth outlook, including factors that could drive results to either end of our guidance range, and an update on our continued innovation.
and operating efficiencies. To begin, strong sequential same store revenue growth of 2% drove year-over-year same store revenue and NOI growth of 12.1% and 14.5% in the fourth quarter.
Results were driven by first, robust blended lease rate growth, a 5.4% was well above historical norms for what is usually our slowest leasing period of the year.
This growth locked in our approximate 5% 2023 earnings, the highest level in our history by more than 200 basis points.
Second, sustained strong occupancy of 96.8% exhibited our ability to efficiently convert traffic into signed leases.
Third
We remain focused on enhancing our rent roll, which resulted in higher turnover than expected from twice the usual volume of resident skips and evictions.
And fourth.
Collection rates help steady.
The number of long-term delinquent residents across our portfolio continues to trend closer to our historical
with approximately 400 residents today.
or less than 1% of total units.
This is down from over 700 delinquent residents earlier in 2022, helping to reduce our bad debt reserve.
Next, early 2023 results in trends.
In my experience, there are four primary indicators that help inform us of the strength of the operating environment.
These include leasing traffic, concessions, absolute affordability, and relative affordability.
Thus far in 2023, we continue to see favorable trends.
First, demand remains relatively healthy.
Traffic is roughly in line with the elevated levels we saw a year ago and well above the long-term average.
But prospective residents are taking longer to make their rental decisions.
Second, concessions remain minimal and have been primarily concentrated in certain submarkets of San Francisco and Washington, DC.
averaging around two to three weeks.
Recently, concessions of one week on average have appeared in Austin, Dallas, and Denver.
Third, our residence balance sheet appeared to be holding up.
Portfolio-wide wage growth has largely kept pace with rent growth since COVID began, resulting in steady rent-to-income levels in the low 20% range.
To date, we have seen scant evidence of residents doubling up.
In fact, 42% of our households are single occupants, up slightly compared to pre-COVID levels.
And last, relative affordability remains in our favor. Renting an apartment is approximately 50% less expensive than owning a home versus 35% less expensive pre-COVID.
Only 8 percent of move-outs in the fourth quarter were due to home purchase.
roughly 30% less than typical.
With this backdrop, blended rate growth for the first quarter is expected to average between 3% and 4%.
similar to historical norms and driven by renewal rate growth of 7% to 7.5%.
New lease growth of negative 70 basis points in January was slightly below the pre-COVID average, but it is positive in February and we expect further improvement as we enter peak leasing season.
Turning to full year 2023, our same store revenue and NOI growth guidance is 6.75% and 7.5% respectively at the midpoints.
We are also forecasting expense growth of 4.75% at the midpoint, with real estate taxes in insurance the largest pressure points.
Underlying the midpoint of our guidance range is a 2023 blended rate growth forecast of approximately 2% to 3%.
We triangulated into the assessment using third party forecast input from our field teams and the output from a multi-factor rent growth forecasting model we developed internally.
Through our predictive analytics work, we have found that total income growth is the primary driver of market rank growth.
Within this model, consensus expectations that job growth will be slightly negative in 2023 are fully offset by the expectation of approximately 3% wage growth.
In addition, a declining home ownership rate and slowing, but still positive, consensus real GDP growth should continue to benefit market rent growth this year.
Offset somewhat by increased new supply.
In short, even if job growth goes slightly negative, we still see a path to positive rent growth in 2023.
With this in mind, our 6.75% same store revenue growth guidance midpoint can be achieved through our approximate 5% earn-in.
125 basis points contributed using a mid-year convention from blended rate growth, comprised of new and renewal rate growth of 1.5% and 3.5%, respectively.
An approximate 50 basis point contribution from our unique innovation initiatives.
The high end of 7.75% would be achieved through improved year-over-year occupancy, additional appreciation from innovation, and blended rate growth similar to the pre-COVID average of 4%.
comprise a new and renewal rate growth of 3% and 5% respectively.
Conversely, the low end of 5.75% reflects a 75 basis point contribution from full-year blended rate growth of 1.5%. It comprises a flat new lease growth and 3% renewals.
which is approximately 250 basis points below the pre-COVID average renewal rate.
Because of the relative strength of our January and February blended rate growth, we need only nominal blended rate growth of 1% on average through the rest of the year to achieve a low end.
For reference, even during past downturns, our lowest trailing four-quarter average renewal rate growth was approximately 2%.
Ongoing regulatory challenges could impact our views as 2023 unfolds.
But we should have visibility into 65% to 70% of our full year same store revenue by the end of April .
We plan to reassess our guidance assumptions at that time.
Finally!
We continue to drive forward on innovation with the intent of further expanding our 300ackets Point, Westww Java, jerciilabe. WinterARTISTS.
Initiatives underway are expected to generate at least 40 million in incremental NOI by year in 2025.
5 to 10 million of this is included in our 2023 same store guidance ranges.
and will largely be focused on revenue upside such as our building-wide Wi-Fi project that enables seamless whole building connectivity, our customer experience project to enhance satisfaction and drive property level ROI initiatives, and the expanded use of big data to improve our pricing engine.
Innovation has and will continue to drive more dollars to our bottom line as we roll out initiatives across our legacy portfolio and on external growth over time.
As an example, on the 2.6 billion of third-party acquisitions, we completed between 2019 and 2021. Innovation has accounted for an additional 50 basis points in yield expansion above what the market alone would have provided.
or around 13 million of incremental NIR.
This translates to approximately $275 million of value creation.
In closing, a special thanks goes out to all of our teams for the relentless efforts to drive the best results possible across our markets.
Your performance in 2022 was exceptional. And with your help, we will continue to leverage new and innovative tools to drive results in 2023 and beyond.
I will now turn over the call to Joe.
Thank you, Mike. The topics I will cover today include our fourth quarter and full year 2022 results and our initial outlook for full year 2023.
A summary of recent transactions and capital markets activity.
and a balance sheet and liquidity update.
Our fourth quarter FFO is adjusted per share of 61 cents, achieved the midpoint of our previously provided guidance range.
Full year 2022 FFOA is adjusted of $2.33 with 16% higher year over year, reflecting the company's second strongest year of earnings growth in its 50 year history.
Similarly, our board authorized a robust 10.5% increase to our dividend this year. Enhancing our total return profile.
Based on our AFFO per share guidance, our 2023 dividend of $1.68 reflects a payout ratio of 74%, in line with our historical average.
Looking ahead, our full year 2023 FFOA per share guidance range is $2.45 to $2.53.
The $2.49 midpoint represents a 7% annual increase.
supported by mid to high single digit forecasted same store NLI growth.
The 16 penny increase versus our full year 2022 result of $2.33 is driven by the following.
A 20 penny benefit from SameStore and Joint Venture NOI.
a four penny benefit from non-same store communities through the continued successful lease up of recently developed and redeveloped communities.
Offset by six pennies from higher interest expense and a higher average share count.
and two pennies from increased GNA expense and other corporate items.
For the first quarter, our FFOA per share guidance range is $0.59 to $0.61, or a 9% year-over-year increase at the midpoint.
The slight sequential decline is driven by higher average share count from the settlement of forward equity agreements at the end of the fourth quarter and the higher interest expense.
Next, a Transactions and Capital Markets update.
First, in alignment with our shift towards a Capital Light Strategy in mid-2022, we made no acquisitions or DCP investments during the fourth quarter.
And second, we generated approximately $220 million of capital from dispositions and forward equity settlements.
Specifically, during the quarter, we sold one community in Orange County, California for approximately $42 million and settled all remaining forward equity sales agreements at roughly $57 per share or a 20% premium to current consensus NAB.
in a 35% premium to our recent share price.
We use the proceeds to further improve our balance sheet and execute approximately $21 million of share repurchases at a 20% discount to Consensus NAV and a high 5% implied cap rate.
Next, 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 3.2%.
Second, we have $1 billion of liquidity as of December 31st, providing us ample, drive powder and strength.
And third, our leverage metrics continue to improve.
Debt to enterprise value was just 29% at quarter end, while net debt to EBITDA RE was 5.6 times.
down nearly a full turn from 6.4 times a year ago, and a half turn better versus pre-COVID levels.
We expect these metrics to improve further throughout 2023.
Taken together, our balance sheet remains in excellent shape. Our liquidity position is strong. We remain selective in our capital deployment with balanced forward sources and uses.
And we continue to utilize a variety of capital allocation competitive advantages to create value and drive earnings accretion.
With that, I will open it up for Q&A. Operator?
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star 2.
One moment please while we pull for question.
for questions.
Thank you. Our first question is from Anthony Paolone with JP Morgan. Please proceed with your question.
Thank you. First questions for Mike. You went through some of the markets where you're giving out some concessions. Can you maybe just step back and give us a sense as to which market you see as being strongest and weakest in the portfolio in 23?
Yeah, hey Tony, how are you doing? That's a good question. I think probably starting at a high level, you've heard us talk a lot about just the convergence of trends over the last few months as it relates to both the Sunbelt and the coast. So let me start there. I think with the Sunbelt, you've heard us talk a little bit about that urning.
Right around 6% going into 23, the cost for us just over 4% and when you think about a East Coast was around 4.5%, the West Coast around 3.75%. The difference in what we're seeing today though is we are seeing higher market rents as well as a higher loss to a East in the coast.
So we're seeing a little bit more forward strength and leading indicator there, if you will. And what we're experiencing and expect to see is the Sunbelt will probably have higher blends to start the year, and a lot of that's driven due to renewal growth and what's been sent out in the foreseeable future. That being said, we do think the coast, given market rent and loss of lease, is going to be a little bit more difficult.
We could catch up and potentially surpass that sometime mid-year. But what it's coming down to is what we're doing differently. And a lot of this has to do with what we've done with the pricing system, the fact that we're able to see.
With current demand trends coming through the door, we're able to price a little bit more efficiently there. But we're also utilizing a lot of feedback just in terms of what the customers are saying, what our teams are saying. And we think that this is going to continue to drive performance as we move forward.
to our customer experience project. So a lot of exciting things to come on the innovation front that will continue to differentiate us.
Okay, thank you. My follow-up is you didn't put much in the guidance with regards to I guess nothing on the acquisition side and just very little on the sales. But to the extent capital markets or investment sales markets perk up here the next few quarters, most rulings are committed in government. I'm this is Wolfram back to my footpath.
What would you look to either sell or buy?
Hey Tony, it's Joe. We did not, we took a relatively conservative approach on guidance as we typically do when it comes to sources and uses. So we really looked strictly at what do we have identified in terms of development, DCP, redevelopment, and a lot of enhancing spend.
and then have that funded primarily with free cash, a low-plus, potentially some disposition and a DCP repayment. So pretty conservative on that front. I'd say as we kind of go through this period of price discovery in the broader market, a number of our team were down at NMHC last week. And you still do have a bid-ass spread out there.
Call it 10 or 15% with sellers kind of looking for that mid-fours type cap rate. Buyers kind of looking for more in the high fours. So they're still going through that period of price discovery, but I think as we potentially stabilize with debt costs really kind of starting to come to an end on the Fed fund side and then spreads compressing and getting more towards a high fours, low fives borrowing cost.
we could see more of that price discovery moving forward. If that occurs, I'd say in terms of uses of capital, where we've been leaning into more so, I think the developer capital program continues to be a great place to put capital to work in this environment, both on new projects within development, but also within potential recap opportunities.
Those turns on a good return, you know, several hundred basis points higher than what we had been doing previously, but also a lower attachment point in terms of loan to values and loan to cost. So I expect us to try to remain active there if we have capital. On the redevelopment side, we've got a pretty big redevelopment pipeline that we continue to build up that has a good opportunity to achieve pretty good returns as well as refresh assets.
and developer capital program side. So if and when we have something there to discuss, we'll bring it back to the market and talk about it. But we are looking at alternative sources to help us grow in this environment.
Great. Thank you.
Thanks, Donny.
Thank you. Our next question is from Nick Joseph with Citi. Please proceed with your question.
Thanks. You touched on the blood and rent growth and kind of on the market side, but just from the day to year collecting and I recognize it's a lower traffic time period so maybe we can go back, you know, for the past few months. Is there anything you're seeing change from a migration trend perspective? Obviously we've seen some better growth in the some, don't from that side, but wondering if there's anything.
the MSA versus 27% last year and for move-ins what we're seeing 29% from outside of the MSA and that's versus 31% last year. So not a big difference and basically they're back to kind of pre-COVID levels.
Yeah, it's a two other things. There's got a demographically and you mentioned traffic as well there. Nick, yeah, demographically one of the big macro tailwinds that I think we have going into this year and help support kind of our outlook is home ownership rate overall. We do expect that to come down. So given the relative affordability dynamic between single family housing and multi family housing.
we think we do have a tailwind there. So that's going to help on the demographic or household formation side for multifamily. The other thing, just you mentioned the low traffic period. 4Q was a lower traffic period. I think our traffic got down to about flat year over year, so perhaps a little bit less demand in fourth quarter. That said, as you look at year to date, things we gain from upcoming traffic coming off back from this areas. The other wee thing is with adrenal part the Villager
And they go up seven or eight percent in terms of your over your traffic coming here through January and February . So we have seen us kind of come through that typical wall that we see seasonally. And see traffic come back quite strong at this point.
Thank you. And then just, Joe, on your comments on DCP and the attractiveness there, how much of the return hurdles changed relative to, I don't know, 12 or 24 months ago? They recognize there's different levels of risk and different structures, so if you can try to just normalize that, kind of how has it changed just with higher rates?
Yeah, it's a overall if you looked back to what we are doing in terms of the fixed coupon transactions on a typical developer capital program deal over the last several years, that was typically in that 11 to 12 percent type of targeted return. Today that's going to be several hundred basis points higher. So call it 13 to 14.
loan to cost. So you're getting more return while taking less risk. You're also seeing some of the preeminent developers come back and look for this type of capital. And so you may get better sponsorship within those investments as well as potentially better assets within those investments. So across the board, I think having capital for that bucket in this environment.
You're going to be a little bit more selective and pick and choose pretty good opportunities.
Thank you. Our next question is from Nick Ulico with Scotiabank. Please proceed with your question. Hey, it's Daniel Tricarico with Nick. Tom, you mentioned a wide range of economic scenarios for the year. Looking to get a feel for what type of economic scenarios baked into guidance, whether this is a soft-
and the data analytics team in creating a wide range of predictive models for our business and help drive our decisions. I think the baseline midpoint of our assumption assumes about a million job loss for the year on a national basis.
and then they try to really drill down to four or five more factors, which is really income growth.
and employment picture that drive our business and pricing power. And through that back testing it, I think it's come up with about an 83% confidence-weighted model at points to the midpoint of our scenario that we've outlined for guidance.
Joe, Chris, anything you'd add to it? Bat on the back? Yeah, definitely a bat on the back for Chris on the predictive analytics side. Tom nailed it, it's a multi-factor model. We're of course looking at broader consensus expectations plus some industry specific expectations around rent growth but while a lot of the focus comes into the potential of job losses and layoff announcements.
Yeah, the recent jobs port was quite strong. We still expect to see wage growth throughout 2023, which is the biggest driver of rents within our industry. You also have a home ownership rate expectations to come down. And while we focus a lot on the supply outlook within multifamily, which does look to be up slightly, call it 10% to 20% year over year.
a broader total housing picture actually should have a supply decrease next year given what's going on at the single family market. So you can roll all those up and you can get to a little bit lower expectation than typical. I think Mike talked about need in 2.5 percent blends. At this point given we know I know January , February , we only need 2 percent blends the rest of the year which is.
called 150, 200 basis points below historical averages for those 10 months. So we've clearly assumed a little bit more of a lower than typical dynamic from a macroeconomic standpoint to get to those guidance numbers.
Great, thanks for that quick follow up. So you look at new versus renewal pricing in the fourth quarter, you know, it's a noticeably wide gap for most markets. And Mike, you gave helpful sensitivity in your opening remarks, you know, for 2023. But you know, at what point do you see renewals converge to new lease pricing?
Or is there an expectation maybe to meet in the middle as new lease pricing accelerates? Any thoughts on that dynamic and how you see it playing out for the year?
That's a good question. What we're seeing today is it's starting to converge a little bit as we look out into February and March. My expectations is probably by 3.2. You start to see it.
come down to 100, 200 basis points because what we are experiencing and what we expect, market rents continue to increase as we go into leasing season. And we are eating away at that loss to lease, so our renewal growth should come down a little bit. And I think we will probably meet in the middle somewhere.
Great, thanks.
Thank you. Our next question is from Austin Werschmit with KeyBank Capital Markets. First procedure question.
Thanks guys. Just want to touch a little bit on the model and I was curious if there were any specific periods that you'd point us to where you back tested the model where you saw some significant or notable job losses, but during a period of still attractive wage growth.
that resulted in market rent growth holding positive. We'd have to go back and take a little bit more of a deep dive on that. We've got the scenarios but not in front of us. What comes to mind is if you go back to 0506.
and look at the shift to a renter ship nation, despite the magnitude of job losses, you did see overall rent growth and revenue growth buoyed to some extent, because even during that dramatic period of time, I think our NLI was down roughly 10% both as a company and as an industry. So that's with fairly draconian jobs outlook.
because you did have another tail when they're from a demographic and household formation perspective. So we'd have to take a little bit deeper dive and look at that, but I do think just being an NA needs-based industry and one in which individuals are going to need shelter, and this is the cheapest cost of shelter in this environment relative to single family.
you're going to have any incremental housing that's formed really buy us over into our part of the world. So I think it's going to be a pretty big tailwind combined with wages going forward.
That's helpful. Appreciate the comments. And then Joe, going to your comments on kind of evaluating joint venture opportunities. Would you characterize these as more one-off opportunities or would you consider something more...
significant like you did historically with MetLife, or maybe other partners in the past? Right now we're thinking about it in terms of probably a little bit more like the MetLife joint venture. They've been a phenomenal partner to us for the last 12 plus years. So finding a partner that thinks like us, views real estate and operations similar to us.
and that has capital to grow with us along a number of different avenues. So as we look at exposing a portfolio of assets to the market to potentially find a joint venture partner with, of course we want to find a partner that will meet the market in terms of pricing and terms, but also then has the capital and the wherewithal to grow with us both on operations.
on potential developments over time, as well as DCP investments over time. So we'd like to find that partner. If it takes several partnerships to accomplish that, that would be okay. But it's a way for us to continue to expand the enterprise, utilize our operational and transaction skill sets to real creatively.
and continue to gain scale overall. Appreciate it. Thank you. Our next question is from Michael Goldsmith with UBS. Please proceed with your question.
Good morning, good afternoon. Thanks for taking my question. The breakdown of the range of the same sort of revenue guidance was helpful. Can you break down the expense growth guidance of 4 to 5.5 percent? Where are you seeing pressure? And then how much more savings can you see from your centralization and property head account reduction efforts?
Hey, Mike. I'll start with that one and joke and help clean it up if needs to. But basically, we're talking about 475 at the midpoint. And I think it's important to break it down into those components of controls and non-controllables. So first and foremost, controlable expenses. It make up just over 50% of the stack at around $250 million.
We do expect between 4.5 to 5.5% growth, and we are seeing pressure points on utilities. We are seeing anywhere from about 6 to 6.5% growth in 23, and that's coming off of nearly 8% growth in 22. R&M should continue to see a little bit of pressure.
around 6 to 7 percent growth for us this year, and that compares to 11 percent in 2022. Personnel continue to see some efficiencies there, so we're seeing around 2 to 3 percent growth, and we were flat in 2022. As it relates to non-controllables, this is just under 50 percent of the stack. We expect around 4 to 5 percent.
We've been running with about 30 properties that are unmanned. We expect that to go around 35 to 40 this year. So we are finding efficiencies there. We're putting in place some technology of the relates to maintenance. And we think we can.
Compressor Days Vaca on the turn side. So we think R&M will be benefiting from that. And then on utilities, we are working on different ROI that should make us a little bit more efficient with our vacant electric, as well as just common area lighting. So we are doing plenty of things. We're trying to address these numbers.
and we feel pretty good at our 4.75% range. I do think too if you take kind of the what's next piece and look at revenue, Mike talked about the 50 basis points that's additive to our guidance expectations this year. I think that's a big differentiator when you look at what we've seen from others put out there in terms of other income expectations.
I think just giving a little bit more concrete fact behind it is we do have identified projects with that. So that's a lot of our bulk internet, our package lockers, third party parking, tenant deposit insurance, things of that nature that's very well identified. So it's not a hope that we get that 50 bits. I think it's a known, I think that's a key differentiator for us as we go into 23 but also.
As you look back into 22, just to give Mike a pat on the back, we think when all is said and done here in fourth quarter, we're shaping up for the number two overall same store revenue growth this year, which is a phenomenal outcome given the diversified portfolio that we have. We don't have as much sun belt as some of the others. So coming in number two, I think
a prideful fact that's driven by market selection, sub-market selection, everything that's taken place on the innovation front. So more to come on that for sure.
This is really helpful detail. And you talked about the affordability of renting and those that are moving out due to buying a new home is down, I believe you said 30%. It's given the slowdown in single-family home price appreciation and signs of stabilization in mortgage rates. What do you expect?
move outs to purchase a home to rise in 23 and so maybe that becomes a little bit more of a pressure as the year progresses.
I think usually what you see from a psychology perspective is that home prices come down even as affordability improves. You do see a delayed response in terms of that affordability. So when we had the 0708 crisis and that shift to rentership, that was a shift that developed and took place for the next seven years or so. So.
And so you do have a different psychological impact that sticks with you a lot longer. So I'd expect that to stay with us throughout all of 2023.
Got it. Thank you very much. Good luck this year.
Thank you.
Thank you. Our next question is from Josh Dennerline with Bank of America. Please proceed with your question.
Hey guys, thanks for the time. I noticed in Seattle the effective new lease growth in 4Q is down 7.4%. Just kind of what are you seeing in that market and I guess what's your expectation built into 2023 for Seattle?
Great Josh, this is Mike. You know, just starting with kind of our exposure if you will, we're around 6.5% of our NLI in Seattle. A lot of that is in the Bellevue area and the remainder is out in the suburbs. So what we experienced during the quarter was strong growth in the suburbs.
What we saw was 10 to 12% growth on a revenue basis. Down in Bellevue, we are still in that 5 to 6% range. What we are experiencing today, rents are coming back a little bit. Over the last few weeks, we have seen market rents increase. We are really not utilizing any concessions in either Bellevue or out in the suburbs.
And we expect newly-screwed to start to show positive here in February and March. And our blend should be in that 2-3% range as we move forward here. And ideally, this is a very seasonal market. What we've seen in the past is typically about a 600 basis point drop off from third quarter. It was a little bit more pronounced this quarter. We do expect that that market will bounce back just given that it's so seasonally.
Yeah, we're expecting roughly flat occupancy. So we've been running right around 96.7 as we go into January , February here. I expect more of the same for the fourth season.
in the future, we're really focused on continuing to drive that rent roll. And so we're going to be pushing rents for the next few months and see how it all shakes out.
Okay, that's across the range.
Okay, that's across the range. You assume the flat, or is it the flat?
That's correct. Across the range. Some markets being a little bit higher, some being a little bit lower, but right around that 96, 7, 96, 8, it's about where we'll land.
Okay, appreciate that. Thanks guys
Thank you. Our next question is from Steve Sakwa with Evercore ISI. Please proceed with your question.
Yeah thanks good morning. I realize you're not providing sort of quarterly cadences but you know Mike could you maybe just talk about how you think revenue growth progresses throughout the year and I guess I'm just trying to get a sense for maybe where the exit velocity might be as we get toward it towards the end of the year and into 2024.
Yeah, we haven't talked much about the cadence, Steve, but what I would tell you is the first half of the year should still be relatively strong, just given what we've done with the yearning. I mean, obviously, we put a lot of focus on that over the last six to nine months. So I would expect anywhere from seven and a half, eight and a half percent in the first half.
That being said, that would imply about a five and a half, six and a half in the back half. But we'll see what happens with marker rents if they continue to go up closer to that high end of the range that we provided. You could see that migrate up.
That's kind of how we are seeing it shake out based on everything we are seeing and experiencing today.
Quite a bit, Tom. So we expect between 65-70% of it will be known by the end of April .
Talk to you.
Okay, thank you. And then second question, I guess, Joe, coming back from NMAT, how are you guys thinking about new development starts? And I know you own a bunch of land parcels. I guess where would you today be penciling out new development? And if those yields don't really work for you, how much higher do the yields need to be in?
Is that a function of cost coming down, rents going up? Obviously it can be a combination of both, but how do you see development starts maybe unfolding over the next year or so?
Yep, good question. I'd say number one, just related to the current pipeline, I want to point out from a cost perspective, we are primarily locked in. So of the three projects still under construction, we're 95 percent bought out and with that 5 percent remaining risk, we've got contingencies in place. So from a cost and return standpoint, I feel very good about all the projects on Attachment 9.
still kind of trending to the high fives, low sixes for majority of those deals as they go through lease up. So that's on the current pipeline. As we kind of go forward, the one project that we've talked about in the past is a phase two Newport Village in Northern Virginia. In the next 30 days we should get kind of final cost estimates on that.
and final refinement of return expectations. Yeah, we fully expect that to be in the kind of mid-5s current type range. And when I say current, that's current RENs on inflated or projected cost. And so that should stabilize over time as we go through that, somewhere into the low to mid-6s. We think that's an acceptable level for that project, especially given that it's a phase 2.
for that capital, so nothing else near term in terms of growing the pipeline.
Great, thank you.
Thank you. Our next question is from Adam Kramer with Morgan Stanley . Please proceed with your question.
Hey guys, I really appreciate all the color earlier, just framing the high end and low end and midpoints. I'm just wondering, given the strong renewal growth, even with the new lease de-sell, where does that loss to lease stand today? And just kind of framing out, could that shift to a gain to lease?
if renewal is going to do stay in this elevated range with new, kind of modest growth.
That's a really good question. I'll tell you what's been promising to see is today we're sitting around 2.2 loss to lease. Last month we were around one and a half so we've actually seen our loss to lease increase and a lot of that has to do with what we've seen with market rent on a sequential basis go up almost nearly 1%.
So even though we're sending out high renewals and capturing it, we're pushing our market rents which gives us the ability to continue to have a relatively high loss to lease. And just to put it in perspective, this time of year we're usually around one and a half. So we're actually a little bit above that. So we feel pretty good about where we're tracking.
Thanks. And just, you know, I think there was a question earlier on, you know, maybe one of the weaker markets in Seattle. Maybe just the flip side of that question, looking at New York, I mean, 16.3% effective new lease rate growth in the fourth quarter. You know, I guess what's kind of driving the continued strength there?
I guess maybe the question is can that continue? Is there a world where maybe that continues to be a really strong market even with new kind of de-selling in other markets?
Yeah, no, I'm glad you asked that. New York feels very strong today. And just to put it in perspective again, this is about a 7.5% market for us in terms of NOI weight. We are heavily focused in the financial as well as Manhattan, just around 75%, 80% of our exposure. So what we're experiencing there is strong demand. So we've got traffic up on a year-over-year basis.
We think New York could be one of our best markets this year with anywhere from 10 to 12% revenue graph Thanks again, guys. We appreciate it
Thank you. Our next question is from Juan Sanabria with BMO Capital Markets. Let's see what their question is.
Thanks for the time. Just curious on what you're expecting for turnover and bad debt at the year rolls on some noise out of LA County. Just curious on how that impacts.
Thanks for the time. Just curious on what you're expecting for turnover and bad debt as the year rolls on. Some noise out of LA County. Just curious on how that impacts your business plan or expectations.
Yeah, well, right now, this is my first week's practice turnover to stay pretty relatively flat on a year-over-year basis. It's up a little bit because we have seen a little bit more on the turnout due to skips and evictions. I'll let Joe get into a little bit more on bad debt. But right now, we're continuously...
on driving renewal rate growth. We expect we'll have a little bit more move outs due to that. But again, we're not seeing people move out to buy homes. So that's helping us offset that. And I do expect turnover to be relatively flat year over year.
Hey Juan, it's Joe. So we actually had a number of these questions last night and this morning on bad debt. So we're still talking through this topic. Hopefully, 23 is a little bit different picture for us. But maybe just a recap on our approach and then I can kind of take you through current trends and outlook. So our approach going back to 2020 when we started COVID.
was to consistently estimate what we thought the collectability for each individual resident was. So we didn't take a draconian view and simply write off all delinquencies. We didn't get overly bullish and say we're going to collect all of it. But we tried to think through, be it from cash or be it through government assistance, what the ultimate collectability was for each of those different groups.
So what that resulted in was when we had government assistance come in, which I got to give a plug to that team, we ended up getting $60 million of government assistance on behalf of our residents and our investors throughout this period of time, which I think if you look at that as a percentage of revenue, probably number one in the space and we took a look at it.
So a big plug to those individuals that worked hard on that. But when we had that come in, it wasn't a positive surprise to our numbers, which means it wasn't a big benefit this year, also not a headwind as we go into 2023. And so if you look at recent trends, despite the fact that government assistance has been coming off,
It was sub $2 million benefit in 4Q. It's down under 200,000 here in the first quarter. So a de minimis amount, but yet we saw the best in the month collections and in the quarter collections in 4Q and into January that we've seen throughout COVID. So we're seeing the ability to get higher paying residents in.
find new residents that have the wherewithal and ability to pay as we go through this eviction and kind of process, and ultimately help benefit 23 members. In terms of the assumption, though, for 23, we think it's relatively flat in terms of total bad debt expense. So maybe a little bit of upside as we work through some of these.
abilities to get back some of our units. Some of the eviction moratoriums burn off, but net net we're thinking it's probably about a flat benefit in our guidance.
Thanks, super helpful. And then just some damn store expenses that God is for 23. What would you say the differential is an expectations between the coast and the sunbelt and the main drivers of that?
The biggest difference what we're seeing today is really around taxes. So we do expect
high single digits in the Sunbelt where we are capped around 2% obviously with our California exposure. So that's probably the biggest difference aside from that we do see a little bit more pressure as it relates to some of our vendors working down in the Sunbelt just given the supply pressure down there. We do see
more expenses there, but for the most part it's pretty tight across the board. Thank you very much.
there but for the most parts pretty tight across the board. Thank you very much. Thanks a lot.
Thank you. Our next question is from Brad Heffern with the RBC Capital Markets. Please proceed with your question.
Thanks everybody. Can you walk through what you're seeing in terms of demand in some of the tech markets? Obviously, you mentioned Seattle already, but San Francisco and Austin as well. Is there any noticeable impact that you're seeing from the layoffs? San Francisco today feels pretty good. I'll tell you over the last few weeks, I've seen a little bit more traffic return to that market.
But again, I think it's always good to put this in perspective. That is about 8% of our NOI. 50% of our exposure is in that Soma downtown area. The rest is down the peninsula. I've seen pretty good traffic across the board. I'm not really seeing downtown outperform Santa Clara, San Mateo necessarily. It's pretty good.
It's pretty good and I will tell you it goes back to some of the exposure that we have in these markets. Seattle, it's just under 15% tech exposure as it relates to our resident base in San Francisco. It's actually between 10 and 12% to much more diversified resident base. And so during the month of November , December , when you heard all the layoffs, we did see
People kind of sit back, demand was a little bit slower as people were just assessing what's going on. But lately it does feel, and what we're hearing from the ground is, people are going back to the office, they want to make sure that their faces are being seen, and we're seeing traffic return a little bit.
Yeah, one other thing we saw obviously early in COVID, we saw a lot of the dispersion of the tech jobs around the country. Similarly, what we've been taking a look at, and I know there's been a couple reports out there on the warn notices related to some of those layoffs. Our business intelligence team has done a lot of spatial analytics work looking at where those warn notices are.
and you'd be shocked to see the distribution of them. So it's not just a San Francisco or an Austin and Seattle. When you look at the percentage of those layoffs that are taking place or percentage of the workforce in those markets, it's not nearly as impactful as I think most of us typically think when we see the headlines just based off where certain companies are headquartered.
there's more of a dispersed impact around our portfolio as well as markets we're not in. Okay, appreciate that color. And then in the prepare comments, you mentioned that renters are taking longer to make decisions even though the traffic levels are basically the same. I was just curious if you could delve into sort of what you meant by that comment and what the implication is.
Yeah, Brad, I would tell you just to quantify that a little bit, the way we think about it is in terms of vacant days. And so it's taking about two days longer just to move somebody in after they start trying to figure out where they want to live and when they want to move in. So about two days on average. Other than that, we haven't seen much of a difference.
Okay, thank you.
Okay, thank you.
Thank you. Our next question is from Chonni Luthra with Goldman Sachs. Please proceed with your question.
Hi, thank you for taking my question. So you guys talked about intermarket differences between coastal and fund built, but perhaps could you talk about intermarket differences, you know, A versus B, urban versus suburban?
Yeah, I'm happy to go into that a little bit, just to give you an idea of what we're experiencing today and what we did experience. So as it relates to A versus B, first of all, in 2022, we did see our As outperform on a revenue basis. And what we expect in 23 and what we're seeing today, our Bs are likely to outperform As.
as it relates to urban versus suburban. Urban outperformed the suburban in 2022. We do expect that to flip.
as we move through 23. And I think just to point to something here, you can see on attachment 11A, our MetLife portfolio, high quality, urban in nature. We had 16% growth during the quarter. So you can see what's happening there just as it relates to different parts of what we're seeing in our mature portfolio.
So overall, it's in good shape. And for Matt Polowup, in the event that you don't see Bible accession or DCP opportunities, or we we stain that price discovery mode for longer.
How would you think about the appetite for buybacks of this year? Yeah, we've definitely had the appetite and willingness and ability to pivot over time. So I think our most recent $50 million buyback that we did in 3Q-4Q was actually our third buyback in the last five years.
We've got a demonstrated history of pivoting when we can. As we get through price discovery, continue to see where the fundamental picture develops, then importantly, what is that source of capital and the price of that capital? As those all come together, I think we'll have a better picture on whether or not we have the capacity for buybacks and if it makes a good risk return tradeoff.
It was somewhat of a fairly easy decision. We were thinking about it in 3, 2, and 4Q because we had done the Ford equity back in March of 22. So we had proceeds available. We had a set price. We also sold that asset in Southern California. So I think as we expose some of these assets to market, see where they're coming on pricing.
We'll be able to potentially take proceeds from that to determine do we want to do more operational acquisitions and put that into our platform and get the lift we typically see, do some of the DCP transactions we talked about earlier, help fund potential development starts, and then of course buybacks will be on that menu as well. Great, thank you.
You're good. Okay, sorry about that. I think the question earlier, Sockway asked about the cadence of performance over the course of the year and you gave a good answer there. And then when I think about the year ahead, it's somewhat of a pedestrian year except for the fact that you have this 5% earn in.
So you're kind of whittling away at this great, great growth profile you had last year. So when you think about the end of the year, is it the best probability that we'll be looking at like a return to CPI plus type of growth in 2024? Or what has to happen for...
you know, to have another year of, you know, above average growth, you know, and for this story to continue. We're, you know, just curious what the building blocks might be when you're looking at December of this year.
Yeah, good question. And obviously we are not macroeconomists, but we can focus on what we can control and see coming down the pipe. So I'd say two things that are beneficial as you start to go into 24. One on the supply side, I mentioned the total housing stock, already starting to come down.
I think that's going to only continue when you look at permitting start activity on single-family and what we're starting to see roll over in terms of permits and starts on the multifamily side. So you start to bring down total housing stock. The other thing is the relative affordability piece that we've talked about quite a bit. That should be beneficial. So those all help market rent growth. Beyond that, then you still have innovation, which we talked about that adding 50 basis plans.
here in the 2023 numbers. I think you have at least another year of 50 base points coming in 2024 when we think about what we have coming, especially on building wide Wi-Fi and some of the other initiatives that will roll into the pipeline. So I think there's a couple dynamics that hopefully help get us above inflationary type of numbers as we go into 2024. And then beyond that you have
Still a very strong balance sheet in terms of lack of maturities coming due really in 2024 with only $100 million. So you don't have the debt resets. And then we also have capital allocation. We'll see where our cost of capital goes and where we can deploy, but hopefully some opportunities there.
Okay, great. Just a follow just a quick one. It earning typically one or two percent in a normal year.
Yeah, our historical average is right around 1.5%.
Okay, and then Joe, on the DCP, what would you say the exit strategy is, or the $480 million of commitments that you have currently in terms of getting paid off or participating in the development? Is there any change to what you're thinking in terms of strategy as it relates to those investments as it stands today?
I wouldn't say any change overall. When we go into those, obviously, we're looking to make sure we have an apartment or an asset that we want to be there with. It's an asset that we ultimately want to own. And we've done that. I think of those if come through maturity over the last, we start that program in 2013 so the last nine years.
I think we've had about a 50-50 hit rate on buying those out. I'd say the only change in dynamic today has to do with as we go through this period of price discovery and figuring out where cost of borrowing is, we've got some upcoming maturities and equity partners that while they may have been thinking about exiting the asset and either us buying it or selling it to the market.
There may be looking for a little bit more time to wait to get through that price discovery mode and optimize pricing and economics for themselves and of course us. So we're going to work with some partners on potentially extending and making sure we get to a better window to transact. But in terms of our desire to buy out, it's going to be case by case as we move through those. It rich, this is to me. I just had to think about it as an option.
the next opportunity.
Fair enough. Okay. Thanks everyone.
Thanks, Rich.
Thank you. Our next question is from Wes Kalladay with Baird. Please proceed with your question. Good morning everyone. A lot of good things on this quarter in the year in the outlook, but I just had one minor negative following up on the DCP.
It looks like Junction was extended and can you give us a little bit of an update there with the distributed by the financing markets as the project is still under construction just a little more details there.
Yeah, it really goes back to kind of that prior comment and response. It's just trying to find the optimal window for them to potentially transact. So they do have certain rights from a senior extension perspective. And so in some cases you're going to have borrowers that look to extend for their rights. In other cases we'll work with them and the senior lender to figure out what the right extension is.
They did extend and we're still in discussions with them to actually extend even further to ensure that we have perhaps a year or two window by which to evaluate the market and figure out what the exit is. Wes, to me again, a couple points to make. We still accrue our
during that period of time. So second, this particular asset's 20% market rents below pre-COVID, so it's still trying to bring itself back.
And the truth is Santa Monica is a great market. So we'll see how it plays out.
I think it's again one of those we like our options at this juncture. We'll see how they play through
Got it. And then I think it was a few quarters ago, you had mentioned when a tenant moves out due to the higher rent increase, you typically have a large move out move up in rent. Are you still seeing that?
We are still seeing it, not to the same level as we saw probably one or two quarters ago, but we are still experiencing that. And then I think we start to see one of the things probably for the next one or two quarters.
We are still seeing it, not to the same level as we saw probably one or two quarters ago, but we are still experiencing that and I expect to see more of the same probably for at least the next one or two quarters. Thanks everyone.
Thank you. Our next question is from Handel St. Just with Maluho. Please proceed with your question.
Hey guys, thanks for taking the question. Just two quick ones from me here. I want to follow up on your comments on the transaction markets. We were at NMHC2 and heard lots of chatter about the stalled market, lots of capital willing to buy but fewer sellers and a pretty sizable bid-ask spread. So I guess I'm curious about how you're thinking about the market clearing cap rates and in the current environment what you're willing to pay and what do you think will get back to a more normalized level?
transaction activity. Thanks. Yep, yeah, I think you're right. We can imagine that 10 to 15 percent delta in terms of buy-sell at price discovery window, and we're unsure at this point which group is going to move which direction. But I would say you do have a pretty good buyer set out there in terms of unlevered buyer pools or individuals that already have capital raised.
They can find pretty compelling IRRs when you're buying in the high fours. You get to a 8% unlevered IRR. So be it high net worth, pension, closed end funds, a lot of private capital is definitely efficient around the space. And I think once again, plenty of capital looking to come over to multifamily.
So for us in terms of our ability or willingness to transact at certain levels, obviously we are fairly focused from the cash flow accretion standpoint. So whatever allows us to get cash flow lift, if we can sell at X and then redeploy into assets that are under managed and get a day one lift with our operating platform.
We're more than happy to transact at different cap-rate levels as long as that opportunity redeploy is out there. And so that's probably the biggest thing we're thinking about in terms of meeting the market and where that pricing comes in.
that's helpful. I'm curious on maybe one set of potential sellers here. I've heard a lot of talk about merchant builders who clearly started a project during maybe different economic times, different cost of capital and capric expectation. I'm curious if you're getting more inbound calls from that set of potential sellers.
how you maybe would assess or rank that opportunity, and if that's an area where you expect to be more active in the coming quarters.
And, Del, this is Andrew. How you doing? Good question. And, you know, we did quite a, you know, there's the opportunity for DCP recaps, I think, in that space. It's still a little early as it relates to that. We've done a few of them late last year. And, you know, we've begun to have some of those conversations, but I still think there's
There's some discovery that needs to take place before we know for sure if those opportunities exist. But it's definitely a place where we're going to, like Joe mentioned earlier, that we have a reduced risk in that scenario where the property will have been completed.
We'll have cash flow, we'll have the ability to get a loan that's not a construction loan so you can work with the agencies and so on. And so you're in a much safer position on those DCP type transactions, but it's still been too early. Some additional conversations have been had.
Thank you and great to hear you, Andrew. Great to hear you, Andrew. Long time.
Thank you. Our next question is from Rob Stevenson with J&J Montgomery Scott. Please proceed with your question.
Good afternoon. How are you guys thinking about the regulatory environment and where the industry's lobbying time and money needs to be targeted over the next few years? You've got rent control, DOJ going after RealPage, taxes increasing everywhere, and the potential for re-imposing eviction moratoriums. How are you guys thinking about this and what's most important?
where are you targeting most of your efforts and prodding the industry to target theirs? Hey Rob, it's Chris. Yeah, that's a really good question.
I would say, you know, we're fighting on a lot of fronts. You mentioned rent control initiatives, right? We see those in six or seven states thus far in the 2023 legislative sessions. We're still coming off COVID restrictions, whether that's eviction moratoriums.
A couple of holdouts out there, eviction diversion programs, etc. You know, and we're working with our trade groups, right? So the California Department Association, places Maryland, Florida Department Association, all that kind of stuff. And we are giving money. I would say rent control is obviously a top priority.
The proposition to get rid of Costa-Hockens in 2024 in California is going to be a top priority. And then everything else. As you think about just cause eviction rules, fee limitations, longer rent, increased notice periods, all that kind of stuff that we're seeing.
which are going against landlords right now, we're working through, but those are probably lower priorities. So most of our dollars are once going to go to those kind of top one, two, three things, and we're going to be working with the major trade groups to not only fight the measures, but educate legislators on
what a better solution is, right? It should be a supply-based solution. So that's kind of where we're working right now. You brought up- And what did you guys- Great.
Oh, that's all right. That is the correct answer, Chris, but I want to emphasize the education piece because California, I mean, the capital right now of a regulatory landscape that's all over the place. That's all right.
We actually go to the city's next door that aren't proposing these and they embrace the idea that new development, new housing stock is a great way to enhance their city. You take those cities as examples, I mean Huntington Beach, which we've been at for 10 plus years now, it's turned out to be a great city with a refreshed stock.
and competes very nicely against Newport, which is just the opposite. And so we think the best long-term path is these cities that are embracing new supply, new product, particularly ESG focused, are going to realize the only way to solve their long-term housing and ESG directives is by opening up the
development windows and we're going to have good conversations along that corridor with a lot of people and we're seeing responsiveness and so where will our capital flow where those opportunities are embraced.
And I guess the one sort of numerical question, how much when you take a look at it did you guys lose from the eviction moratoriums dollar wise or percentage of rent? And if those get reimposed as if job losses mount, how big of an issue is that going forward in a tougher rental rate environment? Thank you.
My response to be a lot, but I don't know the number. Hey, Rob, it's Joe. I do have to know the numbers. So, the ride-offs that we had throughout that period of time, we're probably right around $60 million in terms of total ride-offs as we came through 2021-22 and even in here into 23. So...
We have seen fairly elevated numbers on that front. That said, it sounds like a big dollar amount, but put it in perspective on a billion and six of annual revenue, we're collecting 98.5% of the rents that we're billing, so we're maybe off 100 basis points from where we would have been at pre-COVID.
Therein lies the opportunity to the extent that eviction moratoriums or diversion programs come off over time. We don't expect it to. We don't think we're going to recapture the under basis points near term, but we don't see material downside either. Okay.
Thank you. Our next question is from Connor Mitchell with Piper Sandler. Please proceed with your question.
Hey, thanks for taking my question. Regarding the DC market, the government workers are still working from home. So could you guys comment on how that's affecting the apartment demand? Yeah, DC is obviously a big market for us. It's right around 15% of our NOI. I'll tell you what we're expecting to see as people start to return to office.
coming back to the office a little bit more. We think DC has some legs to grow and be a pretty strong market for us in 2023.
Appreciate that. And then my second question with the increased attention on EV fires, can you guys just put some color on how you're going about upgrading your fire suppression systems in the garage, just since EV fires use a lot more water than the average fire?
Yeah, that may be one to take offline. So we do have a pretty robust EV roll-out program working within our redevelopment team. And so between electrical load, fire suppression, et cetera, you're right. It is a pretty decent cost relative to the ROI that you receive on those.
Maybe you want to take offline if you want to follow up and we can get our experts in that space to talk you through it. Yeah, appreciate it. Thank you. Please pursue with your question. Question about how you see your sum belt markets progressing this year. Are you seeing good track trends there? Good demand.
we return to just a more normal period of time. Market rents will increase as we move forward. But as we started the year off, it's a little bit lower than what we're seeing on the coastal side of the house.
I think maybe one general question, I think you said your lost police was increasing in February , traffic trends improved, January , February . Does that suggest that the man may be stronger than people are expecting across the board this year? I think things are just getting across the nation and how does that impact your overall macro view for the year? I will tell you we are cautiously optimistic and a lot of that over the last...
at the city conference as well as we get into 2Q, if you will.
Great, thank you. Thank you. Our next question is from Theo Ocasagna with CreditSleece. Please proceed with your question.
Oh yes, good afternoon, congrats on the quarter and the solid outlook. Just on the up-ex side, just given that you're seeing store up-ex growth for trust is, you know, pretty much much lower than most of your peers. I get some of the operational efficiencies you guys are working on, but curious on the real estate side as well.
you only had 2.7 percent year-over-year growth in 21, in 22, sorry, even 23, you're kind of forecasting that growth just below 5 percent, which again, seems much lower than your peers. So I'm just trying to understand what's driving that. Is it you guys just challenging a whole bunch of appraisals or...
Well, how do we kind of think through that on the real estate side? Hey, Tio, it's Joe. So I'd say starting off when you look at what we know today, we actually already know about 40% of our taxes for the year. And so you start to get a pretty good read at this point. We have an in-house team, but they're also working with consultants in the field.
And we do challenge or appeal probably about 50% of those on a yearly basis that are available for appeal. When you look at the markets, you know, Mike mentioned earlier Sunbelt's kind of in that 5 to 10% range is the range that we've factored into expectations at this point. So we saw more pressure in 2022 as you look through our Texas and Florida markets.
We expect that to continue just given the phenomenal growth that they saw over the last couple of years and the fact that typically you're on a little bit of a lagged basis. So even though NOI growth has been a little less proficient this year and valuations with cap rates moving up may have come down a little bit, that's more of a lagged impact that maybe you see in 24. When you get to the coast with Prop 13, you're capped at 2% there for about 30% of our portfolio.
So then that just leaves Seattle plus New York, Boston, DC, which are actually generally on fiscal years. So we already know six months of the growth right there. So net-net it gets us to about a 5% impact for real estate tax for the year. Gotcha. Thank you.
Thanks, Dao. There are no further questions at this time.
and CEO Tom Toomey for any closing comments. Thank you, operator, and thanks to all of you for your time, interest, and support.
You know, clearly we remain very enthusiastic about the apartment business and believe the industry has a variety of tailwinds that should lead to another very strong year in 2023. And UDR's operating capital allocation and innovation advantages should deliver relative out performance.
With that, we look forward to seeing many of you in future non-deal roadshows as well as the city conference. And with that, take care.
With that, we look forward to seeing many of you in future non-deal road shows as well as the city conference. And with that, take care.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.