Q1 2023 UDR Inc Earnings Call
Greetings and welcome to the UDR first quarter 2023 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Trent Trujillo. Please go ahead.
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 dotcom.
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 during this call, which are not historical may constitute forward looking statements. Although we believe the expectations reflected in any forward looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met.
A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC, we do not undertake a duty to update any forward looking statements.
When we get to the question and answer portion we ask that you be respectful of everyone's time and limit your questions to one plus a follow up management will be available after the call for your questions that did not get answered during the Q&A session today I.
I will now turn the call over to Udr's, Chairman and CEO Tom Toomey.
Thank you Trent and welcome to Udr's first quarter 2023 conference call.
Presenting on the call with me today are President and Chief Financial Officer, Joe Fisher, and senior Vice President of operations, Mike Lacey, 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.
Yeah.
To begin we started 2023 from a position of strength.
Steady demand from years of housing under supply in the U S cycled best relative affordability versus alternative housing options.
And embedded in same store revenue growth that was three times higher than our historical average.
Year to date results demonstrate this strength.
Let me highlight those one our first quarter same store revenue growth of nearly 10% and same store NOI growth of almost 12% led to year over year F. All away per share growth of 9%.
Too early second quarter trends across traffic blended rate growth and collections are in line with our expectations reinforcing the confidence we have in our business and guidance.
And three our balance sheet is strong and we continue to adhere to capital market signals with our capital light strategy.
Our investment grade balance sheet, and nearly $1 billion of liquidity provide safety during the potential downturn and afford the opportunity to grow the company should our cost of capital improve.
Looking ahead, there remains a wide variety of economic scenarios that could play out, but UDR has excelled across a variety of environments over our 50 year history.
Our strategy is built around diversification.
Capital allocation decisions and focusing on what we control to drive relative outperformance within the industry.
These include.
First our leading operating platform continues to maximize the value of our communities and deliver a high level of resident satisfaction.
Second innovation initiatives are again proving to be a differentiator versus peers and are a positive contributor to our growth profile in 2023 and beyond.
And third our diversified portfolio provides both safety and the ability to allocate capital across a variety of markets and investment opportunities that generate high risk adjusted returns.
Yeah.
Additionally, we benefited from favorable relative setups for the U S multifamily industry.
Job and income growth have defied expectations and remain positive.
Total housing supply is stable and the level of future development starts has started to decline.
And relative affordability versus single family housing is as favorable as its been in nearly my 22 year tenure at UDR.
Taken together I remain very optimistic.
On the relative strength of the multifamily industry and udr's advantages within the industry.
We have a strong culture.
Talented team with a robust track record of performance and we continue to invest in our associates and additional technologies.
We expect to improve our efficiency expand our NOI margin and create value for all UDR shareholders and stakeholders.
In closing I. Thank my fellow associates for your commitment to excellence and innovation.
Which I'm confident should continue to drive attractive absolute and relative results.
With that I'll turn the call over to Mike.
Thanks, Tom the topics I will cover today include our first quarter same store results early second quarter, 2023 trends and how they factor into our reaffirmed full year 2023 same store growth outlook.
And an update on our continued innovation and operating efficiencies.
To begin strong year over year same store revenue and NOI growth of nine 6% and 11, 7% in the first quarter were driven by first blended lease rate growth of three 5%, which was in line with our expectations and driven by above average Roe.
Bill rate growth of seven 4%.
Okay.
Occupancy held strong at 96, 6% supported by healthy traffic.
And third.
Rent collections continued to improve with March being our highest level of in the month collections since the beginning of Covid.
During the quarter, we remain focused on enhancing our rent roll and recapturing apartment homes that were previously occupied by long term delinquent residents.
The short term effect of our approach had three direct results one approximately 400 basis points of higher annualized turnover versus the prior year.
Although 39% annualized turnover is in line with our long term first quarter average.
Two increased repair and maintenance expenses and three higher levels of availability during a seasonally slow leasing period, and therefore, a near term drag on pricing.
However, releasing these apartment homes to paying residents is beneficial to total revenue.
Our efforts to date have reduced the number of long term delinquent residents to approximately 300.
50 basis points of total units.
Which is down from a peak of 750 and compares to our long term average of 250.
This in combination with better in months collections helped to further reduce our bad debt reserve.
Next we continue to see favorable fundamental trends to start the second quarter.
First demand remains relatively healthy.
Year to date job growth has been stronger than many had anticipated and traffic is roughly in line with the elevated levels, we saw a year ago and well above the long term average.
Second the financial health of our residents appear to be in good shape as wage inflation has largely kept pace with rent growth, resulting in steady rent income levels in the low 20% range.
In light of recent consumer spending habits and bank commentary, we continue to watch for signs of change, but affordability remains strong it's only 10% of our first quarter move outs were due to rent increases.
Which is down from roughly 18% at its peak during the middle of 2022.
Furthermore, we have yet to see material evidence of residents choosing to double up.
Third relative affordability remains in our favor renting an apartment is approximately 50% less expensive than owning a home versus 35% less expenses pre COVID-19.
Only 5% of move outs in the first quarter were due to home purchase which is roughly 60% less than our historical average.
And last concessions remain minimal and average approximately half a week on new leases across our portfolio.
The concessions we have been offering remained primarily concentrated in certain submarkets of San Francisco.
Washington, D C and our sunbelt markets, where the ladder a function of new supply being delivered to those areas.
With this backdrop second quarter blended lease rate growth is is trending as expected it should average approximately 3%.
New lease rate growth in April was approximately 50 basis points higher than March.
The renewal rate has decelerated by 100 basis points.
This convergence is in line with our expectations.
Relating this to full year 2023 guidance to achieve the $6 75 mid point of our year over year same store revenue growth guidance full year blended rate growth needs to approximate two 5%.
With first quarter blended rate growth of three 5%, we need to average only 2% blends for the duration of the year.
We believe blends are anchored by renewal rate growth, which even during past downturns was at least 2% on trailing four quarter average in short we remain confident in our ability to achieve the guidance we set in February .
Turning to regional trends on our last call, we anticipated that growth in our sunbelt markets would continue to converge with the COSE and that coast would have better growth results starting mid 2023.
That crossover occurred in the first quarter slightly ahead of our expectation.
While traffic remains healthy across all of our markets the level of new supply being delivered to certain some of markets has resulted in higher market level concessions and has led to a pause in the ability to push new lease rate growth <unk>.
Conversely results and momentum in New York, and Boston, which comprise roughly 18% of our same store NOI have been stronger than expected.
Minimal levels of new supply and robust traffic led to 97% occupancy and portfolio, leading blended lease rate growth of more than 6% on average for these two markets in the first quarter.
These divergent situations reinforced the value of a diversified portfolio across markets and price points we.
We will continue to take a balanced approach between rate and occupancy to maximize revenue and NOI.
Finally, we are progressing with our various innovation initiatives.
Which will add to our bottom line in 2023 and beyond.
Our high margin revenue focused and tech, enabling building wide Wi Fi project is expected to be rolled out across approximately one third of our portfolio by year end and our entire portfolio by 2025.
We're making inroads on various resident specific initiatives as part of our customer experience project that will enhance satisfaction reduce resident turnover and drive greater pricing power.
And we have advanced the integration of big data Tinnient, our pricing system.
Over the past decade, our same store growth results have benefited from approximately 50 basis point contribution from our unique initiatives.
And this year, we expect the same.
In closing thanks to our teams for your passion and delivering best in class results to our residents and stakeholders.
I'll now turn over the call to Joe.
Thank you Mike the topics I will cover today include our first quarter results.
A summary of recent transactions and capital markets activity.
And our balance sheet and liquidity update.
Our first quarter <unk> as adjusted per share of <unk> 60.
Achieved the midpoint of our previously provided guidance range and was supported by strong year over year same store NOI growth.
The slight sequential decline was driven by higher average share count from the settlement of afford equity agreements at the end of the fourth quarter and higher interest expense.
Really offset by incremental NOI from recently completed development communities.
Included in our first quarter results was a $3 $7 million, one time expense benefit due to a refundable payroll tax credit related to the employee retention credit program, which was previously contemplated in our original guidance expectations.
Looking ahead, our second quarter F away per share guidance range is 60 to.
The 62 cents or approximately 7% year over year increase at the midpoint.
A 2% sequential increase is driven by a combination of higher NOI from same store joint venture and recently developed communities.
Year to date results are in line with our initial expectations and we have reaffirmed our full year 2023 same store growth in <unk> per share guidance ranges.
Next a transactions and capital markets update.
First in alignment with our shift towards a capital light strategy in mid 2022, we've made no acquisitions no new D. C P investments and no new development starts during the first quarter.
Second.
During the quarter, we completed construction of a $145 million 300 apartment home community in Washington D C.
With this our current development pipeline consists of just two communities totaling 415 homes at a budgeted cost of $188 million with 40% of those costs already incurred airborne, thereby limiting our forward funding commitments.
And third.
During the quarter, we achieved stabilization on two development communities totaling 605 apartment homes for a cost of $142 million at a blended stabilized yield of approximately 7%.
We also continued the successful lease up at our three other recently completed development communities, which have an expected weighted average stabilized yield in the high fives.
Finally.
Our investment grade balance sheet remains liquid and fully capable of funding our capital needs.
Some highlights include <unk>.
First we have only $113 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 I'll look in the sector and the lowest weighted average interest rate amongst the multifamily peer group at 3.25%.
Second we have nearly $1 billion of liquidity as of March 31.
And third our leverage metrics remained strong.
Debt to enterprise value was just 29% at quarter end, while net debt to EBITDA was five seven times.
Down nearly a full turn from six four times a year ago and a.
Half, a turn better versus pre COVID-19 levels.
We expect these metrics to improve further throughout 2023.
And all 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 drive earnings accretion.
With that I will open it up for Q&A operator.
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Your first question comes from Eric Wolfe with Citi. Please go ahead.
Hi, Thanks, good afternoon.
We get a lot of questions and answers on sort of the how supply is going to impact. The sunbelt. Later this year, just if theres more sort of a cumulative impact from all the supply delivering I guess as you look at your markets and project forward.
Do you see the sunbelt the Virgin from the coastal markets later this year or do you think things will just keep tracking together.
Hey, Eric It's Joe maybe I'll kick it off and then kick it over to Mike to talk about some of the trends we're seeing down there.
We've talked about seeing a pretty decent increase in supply as it comes to the Sunbelt I do think our portfolio is a little bit more insulated when you look at supply growth within our Submarkets, we have a little bit more of a b quality in suburban price point down there so a little bit more installation, but overall I think sunbelt for us has seen about three and a half per cent of stock and so.
While demand has held up relatively well in recent years.
Depending on the macro outlook is that does start to fade a little bit you probably have a little bit more risk of their supply comes on so Mike can probably give you a little bit more on what we're seeing down there yeah.
Yeah, Thanks, Joe and Eric specific to current trends mentioned in my prepared remarks, we are seeing concessions start to pick up a little bit in the sunbelt that being said, we're not offering much there occupancy is still strong in that 96, 5% range and we expect that we'll be able to continue to push rents as traffic continues to increase on a month over month.
Moving into the season.
That's helpful. Thanks, and then unrelated question, but you know you always thought of as being in a forward thinking on the technology front and to that end I was just wondering if you'd consider using your platform to help manage the back office of other companies' portfolios like one of your peers.
Now just recently.
Yeah, Eric It's Joe it's a it's a good question and it goes up.
I'd say when you look at our innovation, we've talked a lot about the 60 plus initiatives that we have out there right now that we're focused on 40 plus million dollars that we think will come into the run rate here in the next couple of years. So for US I think staying focused on what we can control whats going to benefit the consolidated portfolio today and keep rolling out those initiatives like we want to stay laser laser.
We're focused on that for the time being.
Okay. Thank.
Thank you.
Next question comes from Jeff Spector with Bank of America. Please go ahead.
Great. Good afternoon. Thank you just a you know taking a step back against pretty amazing.
Quarter, you've had we've been talking about this recession coming for over a year now and then just some of your comments on on latest conditions and the health of the tenant.
I guess from your seat on this recession you know how are you thinking about this.
No just big picture and.
Is it possible that apartments, your udr's portfolio could be more resilient than what we've seen in the past during recessions in particular.
Seeing a lot of white collar job layoffs.
Yeah, Jeff This is to meet with respect to a recession I mean, I think they're all different shapes forms and how you get out of them.
Our quite a puzzle to solve and through history, but this one strikes me as a capital markets recession.
<unk> brought on by policy lending patterns capital flows and so.
That's kind of unusual usually it's followed by a rapid employment outlook change.
And we're just not seeing it and you've seen the first three months of the year, probably for all have positive job growth, which is a big driver of our business. So it feels like us capital markets recession, not impacting the jobs that severely.
If it does it's going to be localized and we'll adjust accordingly, but it doesn't feel like the normal type of recession that has a heavy employment based downturn.
Thanks, Tom.
And then if I can ask it and apologize if I missed this did you discuss.
How April leasing rates are doing so far what you're seeing in April in various markets.
[laughter].
Jeff Let me take that and I think it's important to just give you a few other points is as we think about April and I want to reiterate we're on track with our initial guidance the year's playing out as we expected as a whole and again, we've said this before guidance assumed 2.5% blends for the year with our three and a half from the first quarter, we only need.
That 2% for the remainder of the year. So just kind of put that in perspective as far as regions go East coast is still doing extremely well, we're seeing occupancy in that 97% range blends in the 6% range in both New York and Boston and then the West Coast right now is basically in line with our expectations. So we feel pretty good.
About the West Coast right now Sun belt, a little bit weaker than we would've expected still seeing pretty strong blends coming out of that part of the country, but that's a little bit off from what we originally had for our plan for the year as far as April goes, though it looks a lot like <unk> are blooms are in that three 5% range.
We're seeing new lease growth continued to increase month over month, our occupancies in that 96, 6% range, which is comparable to what we had in <unk> traffic is picking up based on seasonality kind of where we expected and we're sitting right now with less long term delinquent than we've had in a very long time, so we feel pretty good.
Where occupancy is today going into the season.
Great. Thank you.
Next question, Austin, where Schmidt with Keybanc capital markets. Please go ahead.
Yeah, I was just curious Mike which markets saw the biggest moves in month over month improvement on new lease pricing April versus March and then specifically on New York I mean, how long do you think the momentum you saw you know how long you think that momentum could continue I guess.
Versus how it performed in the first quarter.
Sure. Thanks for the question often still seeing the most growth on the east coast and to your point, New York, It's coming down a little bit from those highs of 18 20 per sample ends, but we're still seeing 6% to 8% today, so still strong probably the strongest month over month.
<unk> followed by I would tell you Boston feels good as well as D C. Starting to pick up and then the others are pretty much in line with where we were in March.
New York, specifically I think they still have a little runway, we're still seeing a lot of traffic come to that market.
No concessions to speak of and with occupancy where it is today close to 98%, we feel pretty good about continuing to push.
That's very helpful color and then you know as it were.
Relates to potential joint venture I guess, what's the latest update.
Around the interest from potential partners and timing of announcements and I guess has there been any change in in sort of your initial expectation on pricing as it relates to just contributing those assets.
Yeah, So Joe first off I'd say, obviously, we've got a great partner I met life. That's been a very good long term partner that we continue to work well so no change on that front.
Strategically as we think about joint venture capital I think we've talked about it in the past on these calls and with investors I think we've proven out over the last couple of years that we have a value creation mechanism in terms of the operational platform and its ability to add excess NOI margin to new acquisitions and so we've.
We've proven that out utilizing our own equity when that's available and priced right.
<unk> been a public company, we don't always have that capability and so yeah, a joint venture would allow us the opportunity to be on the market throughout the cycle to be able to utilize dry powder sourced through a JV interests.
Seed capital, which would come up fairly efficient pricing and be able to go out there and transact in this market and then go lift NOI and cash flow grow. So it does a number of things for us you've got the cash flow growth on the assets you, obviously get fee streams that enhance the incremental Roe.
On each dollar we deploy youre getting scale along the way.
As long as we continue to buy that deal next door and keep help on both a consolidated and JV portfolio. So.
Overall still strategically have a desire to do that we continue to advance discussions on that no update at this time, but the you know on the pricing front.
Pricing today, plus or minus 5% cap rates is kind of where the market has settled in so I would hope to if we do have something available to source capital at that level.
Great. Thanks for the time.
Right.
Next question, Tony Palo <unk> with J P. Morgan. Please go ahead.
Yeah. Thanks, just following up on that you just mentioned cap rates, maybe in the fives I think last quarter. You had said maybe the bid ask was something in the high fours to mid fives and so just wondering if you can talk a bit more about just what you're seeing out there in the transaction market and what your crystal ball looks like on how that evolves over.
The balance of the year.
Hey, Tony It's Andrew how are you.
I'll take that one.
In general as Joe said, we remained.
Focused on our capital light strategy at this point, we are having a lot of conversation.
Market underwriting number of deals.
And pricing is definitely more in that five to $5, 100% range today.
There.
With us focusing on platform and the deal next door, if and when we get back in the market will be our focus and be able to utilize the benefits of our platform that had been discussed what we can add value from acquired from other owners and operators until later on Mike's team and platform created.
Okay. Thanks, and then just second one on the D. C. P book, I guess somewhat related to to allocating capital I mean, what's the comfort level and desire to kind of keep it at this level versus either seeing more opportunities out there to do more or even get paid back on what you have.
Yeah. It's a good question I guess, yeah as with everything within kind of our diversified platform. It's all things in moderation. So yes, as a percentage of enterprise, we're about 2% of enterprise value within the DCP book, we've talked about a willingness to take that a little bit higher from kind of that half billion dollar type of number.
Have had actually a JV discussions around that as well, we think thats an area that could be an opportunity for us to source alternative forms of capital and help us expand that book and the ROE on those investments, but also not increase our.
Exposure to materially so it's an area that we're looking at today.
Today, I would say that the.
Book of business available or the pipeline has come off quite a bit.
You've seen a lot with the obviously the original banks pulling back on overall construction London.
You've seen it become more difficult to that lineup equity partners for new developments and so our D. C. P book being a byproduct of that has pulled back and so little bit less of a pipeline today, which are for DCP deployment not necessarily a near term positive, but I think for overall fundamentals and a $1 6 billion of revenue we have clearly a P.
Positive when you start thinking about a smaller supply pipeline going into the second half of 'twenty, four and under 25%. So.
Great. Thank you.
Your next question comes from Jamie Feldman with Wells Fargo. Please go ahead.
Great. Thank you.
Can you talk more about what youre seeing in terms of urban versus suburban performance and the Eva D assets across the different markets.
Sure it's specific to the beads, we actually have seen a little bit more outperformance. So I would say thinking about blends probably 70 to 100 basis points more on the bes today than the as occupancy has been relatively stable around that 96, 5% to 96, seven both a and b.
So not a big difference there so I'd say right now the price point on <unk> is a little bit stronger and that's kind of what we expected for the year.
And then what about like your urban assets Whats your suburban assets.
Urban still doing a little bit better and I would point, specifically to places like Boston D. C for us today as well as Soma in San Francisco those parts of those markets are doing a little bit better than some of the things on the outskirts it's not materially different but urban is a little bit stronger we do expect that some of the suburban.
Starts to bounce back mid year, this year and probably converge to some degree.
Okay. Thank you and then for my second question.
What would you say the key downside risks in terms of your same store expense guidance, whether it's taxes insurance R&M and where do you feel like you have the least visibility right now.
We feel pretty good in terms of taxes and insurance today I would tell you more on the controllable fraud, just with what we've seen with turnover you have a little bit of pressure on R&M that being said I think we've done a really good job with putting in place our technology around maintenance, we just rolled that out about three.
Weeks ago across the entire portfolio. So we think we've got some things that can help mitigate expenses going forward. There are we are starting to roll out more of those unmanned properties as we move into the season here. So that'll help mitigate on personnel expense and A&M cost typically go with turnover. So if you have more evictions.
Skips things of that nature, you could have more attorney fees, but it's minimal. So I'd tell you right now turnover to some degree, but we do believe we haven't mitigated.
Yeah, Okay, just to follow up on that Jamie a couple of comments. We've been asked a few times about kind of cadence of expenses and so if you go back to 2022 first half of the year was about 4% growth second half, 7%. So we're actually coming up on easier comps. When we go into the second half of the year a lot of that was driven by one it was very difficult to.
Place personnel in the first half of 'twenty two given the labor environment, we had a lot more open positions that we're comping against here in the first part of the year in response to that we did do a lot of midyear raises throughout the portfolio and so we'll be anniversarying against that by the time, we get to the second half Mike mentioned the turnover piece. It was starting to have more success with long term delinquencies in the second half of the year last year.
As well as definitely here in the first quarter and I think second quarter. So we will start to see hopefully that mitigate to some degree that Mike mentioned in the real estate tax insurance base real.
Real estate taxes today, we generally know about 70% of that number for the year at this point. So don't expect a lot of volatility there and on the insurance side, we do a renewal in mid December so premiums are relatively locked in here for most of the rest of the year that kind of a 20 plus percent number.
Claims can be volatile claims, making up about 50% of the insurance number and so that's why you see insurance in first quarter actually being down on a year over year basis premiums were up but claims were down 30 plus percent as 'twenty, one and 'twenty, two where both running at pretty significantly elevated levels relative to history. So we're starting to see that come back to a more <unk>.
<unk> run rate.
Okay very helpful. Thank you very much thanks, guys.
Jamie.
Okay.
Next question, Adam Kramer with Morgan Stanley . Please go ahead.
Hey, guys. Yeah. Thanks. Thanks for the question just wanted to ask about capital allocation, you know recognizing kind of a capital light strategy or the shift you mentioned earlier I think you guys have been really Havent really good chart in your in your deck and I'm showing it really can be the ability over time to get kind of issue issue equity when you're thinking about the D V and he kind of.
So uh huh.
To buy back shares.
When we went out and discounts one reason, how youre thinking about the buyback in that context, I think buyback cause was not mentioned in the supplemental I was wondering how youre thinking about buyback in current environment and our current levels.
Yeah. So clearly we've been active in the past on buybacks. We did some in the second half of last year. We've done some of the previous years, when we get to discounts so I.
I'd say last year was a relatively easier decision given that we had previously issued equity on a forward basis.
In the first half of 'twenty two up in the high Fifty's and so you had identified source of capital at a very compelling price I E. Roughly a four cap and we were able to buy back stock in the high fives.
As you fast forward to where we're at today Yeah. We are in a capital light strategy sources and uses a relatively balanced with relatively light for development and that commitment in terms of maturity. So feel good on sources and uses.
We do need to figure out where we would find in where we had priced that additional source today. If we did want to do a buyback we talked earlier on the call about exploring joint venture capital that could potentially create some dry powder for us to deploy into both the operating assets DCP and potentially buyback so that would be part of that discussion if and when we ultimately saw some.
Capital there, but.
Right now sticking to the capital light strategy, it's something that we'll consider but.
Nothing there in the first quarter.
Got it that's super helpful and just maybe switching gears thinking about affordability.
Maybe just touch a little bit about about you guys about some really good numbers and your buybacks. Historically, maybe just you know whether it's been our latest moving data affordability there.
Maybe you can kind of attack.
I can call your tenant exposure as any numbers around that that you're able to quantify them I think that would be helpful as well.
Yeah, I'll start and Joe you can clean me up here, but from what we're seeing one thing I would point to is just on the affordability aspect people aren't moving out to buy homes, we are seeing right around 5% moving out to do so that typically runs around 12%. So we're just not seeing much on that front in terms of people.
Leaving because of rent increases that is around 10% today significantly down from mid last year, when we were around 18%.
And so we're starting to see that come down to some degree as well.
Not seeing people double up we always talk about how many people are in our units still right around 1.8, and we're not seeing people transfer down to smaller units. So right now it feels.
Pretty good.
Joe anything you'd add to that.
Okay.
Great. Thank you guys.
Next question charge Ray Lewis Rubin with Goldman Sachs. Please go ahead.
Hi.
Good morning, good afternoon, and thank you for taking my question.
You gave us some thoughts on the Sundance you talked about the east coast.
Could you, perhaps throw some color around divest coast, you know, particularly markets like San Fran and Seattle, What are you seeing in these markets you know from me.
Pricing standpoint, and then from a concession standpoint like did things get worse in the last two months out. Thanks.
No. It's a good question.
Seemed a few of those lately I'd tell you again, the west coast fields.
Pretty much in line with what we expected and I'll break it down a little bit for you starting with the Pacific Northwest Seattle for US, we're not really utilizing any concessions that being said market rents have been a little bit weaker than we expected going into the year market rents are starting to pick up as of late and our occupancy is still.
And that 96, 5% range. So Seattle feels good I think specific to some of our submarkets ever at Kirkland and places like that we saw around 10 or 11% growth. So we're seeing a little bit more strength out in the suburbs Bellevue today still relatively strong no concessions about 5% to 6% growth.
So that's that's the landscape of Seattle in terms of San Francisco, Soma still doing really well for us we saw almost 14% growth during the quarter and we're still seeing about two week insertion that seems pretty average we've had two weeks for about 18 months now and it's just kind of par for the course, if you will.
When you start to go down the peninsula, not really offering concessions today.
Japan season that 90, 697% range and we're still seeing pretty decent blend so traffic starting to pick up in San Francisco.
Down along kind of the Socal, if you will L. A has been very strong for US. This is a three 5% NOI markets are relatively small and our exposures mainly limited to Marina del Rey, We've had a lot of success there occupancies in that 97% range no concessions to speak of in market rents continue to move up so.
I feel pretty good about L. A and then Orange County counties than just steady as it goes.
Occupancy, 96% to 97% no concessions market rents continue to improve as we move into the seasonal part of the year. So right now so Cal feels pretty good for us.
Great.
As a follow up could you discuss how the factors eviction moratoriums ending and he has played out for you like what portion of delinquent tenants speed back.
All the past dues and fully what portion she does.
Just sort of give back Keith and leave what's the ultimate upside and how do you think about any near term had a vacancy from this dynamic.
Hey, Chad, it's Chris I can help you out with that so when the county eviction moratorium went away at the end of March we had about 70 long term delinquencies in the portfolio. Once again as Mike said, it's a pretty small market three 5% of NOI, but of those 70 about 40 came in and.
Paid us right away as far as April rents. So they still have a balance that's due that they paid us April rent.
Probably.
Two to three people came in paid April rent and paid off their entire balance.
The remainder of them are either under eviction.
Sued served.
Payer quit notice something like that so we're working through that process right now.
And just maybe some higher level comments as it relates to the rest of the portfolio.
Minder overall, yeah, we guided to mid 98% collected.
For 2023, which is pretty consistent with where were at in 2022.
We're seeing minimal variability at this point in time to that number so don't see any downside really don't see a lot of upside.
Over time, we can probably get back to maybe a 99% collected for the portfolio, but going back to the mid 90 nines, where we used to run its going to be exceedingly difficult just given eviction diversion programs and a lot of our portfolio. So so.
We're in the mid <unk> is where we're at we did have a little bit higher write offs than expected in the first quarter as we've had really good success getting some of those long term delinquents out of the portfolio. We thought that would have taken a little bit longer throughout this year and so while it was a little bit of a drag on both sequential and year over year revenue growth.
Do think that's a tailwind as we go through the rest of this year on both sequential and year over year as we keep moving throughout the year on that front. So overall feeling really good I mean, when you look at collections in the month as well as in April March and April are running much higher than they were in 2022 in terms of in the month of collections.
So between collections getting better getting new residents and and also as we have some of these eviction moratoriums, having come off and converting formerly nonpaying residents backed up and we feel really good about where we're tracking in terms of guidance on the bad debt number.
Thank you for those.
Yeah.
Next question once the Nigeria with BMO capital markets. Please go ahead.
Alright, thanks for the time.
Just on the investment side notwithstanding.
Ending you know your capital light strategy today, and maybe the cost of capital not where you want it exactly but.
Curious what markets would looked at best with your kind of forward thinking data analytic approach.
Times are a bit contrarian, just just curious as you look out.
Couple of years, where you see the best opportunities across.
Your opportunity set.
Hey, Juan it's Joe.
I guess number one the area that we always have the most conviction is that transaction down the street. So if we can find another property to nearby no matter what market theres, so much efficiencies to gain out of that and additional scale to gain out of that so.
We're never going to redline certain markets will always be looking for deal next door.
Beyond that you know if we did have a source of capital that was compelling today.
Yeah. There is markets in every region that look good yeah. If you go down into the.
Sunbelt, I'd say, Dallas looks more compelling to us even Nashville, even though it has headwinds today from a longer term perspective, you're saying permit activity come off really dramatically in Nashville at this point in time. So there's a couple of our Sun belt markets that we like East Philly has really been on a tear here recently in terms of market rent growth in <unk>.
Screen well for us as does D C and Boston from a longer term perspective.
And then out West you know you look at maybe suburban San Diego is interest in Northern California.
Actually screens well from a client perspective, but you really got to pick and choose your points given the regulatory environment there in certain municipalities and so that one is a.
Little bit more challenging on the regulatory front, but yes.
I think overall, there's a lot of areas that we can pick and choose from them. That's one of the benefits of being diversified. So if we do have a cost of capital or social scaffold, that's compelling and that's kind of where we'll look.
Okay.
Thanks for that and then just on the renewal.
You mentioned kind of the spread blew out between the new and the renewal spreads over the quarter.
Just curious on how we should think about that for the balance of 'twenty three maybe just how you're thinking about that in your own budget and where the May and June renewals have gone out.
At present.
Yeah, Great question, what we're sending out today basically through June at this point in that five 5% to 6% range. We expect it to stabilize in that range probably over the next few months, maybe come down in that five to six going forward and then new lease growth excuse me continues to.
A move up on a month over month basis, So obviously that spread will continue to compress.
Okay.
Thank you very much.
Next question, Michael Goldsmith with UBS. Please go ahead.
Good afternoon, and thanks, a lot for taking my question Mike in your opening.
Our remarks, you described traffic is in line with last year, but also coming through that demand is relatively healthy. So does that imply that conversion is lower or something else is weighing on demand just like similar traffic.
Yeah. It's a good catch we have seen some of those conversion numbers come down a little bit just with some of the affordability that sit down in the sunbelt. So more cancels in denials and it's really a product of people searching the market getting an understanding of what's there for new supply while concessions are being offered so at times, we do.
I'll have more people canceling.
We're still netting out where we need to be and obviously with our occupancy in that 96.5% to 97% 96, 7% range, we're still holding where we need to be so feel feel pretty good about it.
Got it and then Tom in your opening remarks, you talked about the geographic diversity of your portfolio allow us to allocate capital in the markets that are most advantageous you've kind of shifted to this.
We have a balance sheet light strategy.
Active development pipeline includes Dallas and Tampa, So should we interpret that.
The markets, where you see the most opportunity thanks.
Yeah, I'll kick it back to Joe.
I think Joe highlighted it very earlier.
Q&A with respect to we're always going to look for the deal next door, where we can achieve the high level of efficiency and in some cases as Mike has done actually operate assets with no one on site, so rather that's Tampa Dallas.
But then we go to Chris and his analytics of where we think rents are trending with respect to the next for 10 years.
And that's our targeting aspect of it the good news as Joe also mentioned was.
We're in 21 markets today, so that gives us a broad range of looking at where we can accretively deploy capital at any given time.
Our capital light strategy is a reflection of where we currently trade with respect to our stock price and where we think assets would trade.
So.
When that is not there we turn to our other value creation mechanisms and you've seen us highlight those over the years for me that our operations innovation to D. C. P.
Two redevelopment, which is probably gaining more steam in our mind. These days as we see stabilization and growth prospects in these markets return.
Or accelerate in some cases.
Thank you very much.
Next question, Nick <unk> with Scotiabank. Please go ahead.
Thanks, This is damaged cargo with NEC.
First question, Mike You May have said new lease rates in the Sun belt have been a bit weaker than expected. So I'm curious if you could expand on the relative softness there you know in relation to how do you view the occupancy rent trade offs entering like the peak season.
Yeah, Dan again, we're still seeing healthy growth in Nissan balance just a little bit off from our original expectations and we have seen market rents start to move up over the last three or four weeks there. So on a month over month basis. It continues to improve.
It's just a little bit off from well again, what we said originally going into the year.
Sure Okay.
And then I guess switching to the other cuts on your northern California, and Seattle portfolios.
Do you have a sense of what percentage of your tenants are employed by tack or or big Tech companies and have you seen any increase and move outs quoting job losses. The reason or do you think there's been sufficient rehiring and mitigate that you know given the job market strength that you quoted.
Yeah, No we watch that very closely and we're still right around 13% to 15% exposure in both San Francisco and Seattle as a whole we haven't seen a lot of people come in and drop off keys because of job related events and we continue to see in migration in those areas. So again, it's not a lot of our exposure today.
And not seeing a lot of.
Issues, if you will.
Hey, Dan It's Joe maybe a couple of things to add to that too just I know those two markets get a lot of focus given some of the headlines around the tech layoffs, but a number of individuals that are on this call have done some pretty extensive analysis on the warn notices we do our own analysis as well on that and yes. It typically you see it maybe about 20% of those notices actually reside within <unk>.
Beforehand, and Washington for those tech layoffs, so it is pretty well dispersed around the country and I think when you look at our blended lease rate activity in those two markets. You know both of those markets actually saw acceleration from <unk> into <unk>. So I think it gives you a sense that the layoffs are pretty diversified supply is actually coming down in <unk>.
California and for what we're seeing on the ground, we're actually seeing pretty good traction.
Great. Thank you.
Next question Anthony Powell with Barclays. Please go ahead.
Hi, Good morning, I had a question on the I think the April lease spreads again, because I think you mentioned a few times. So in the first quarter you can get blended spreads of three 5%.
I believe in the prepared remarks, you talked about <unk> being closer to 3%.
Q&A question I believe you said three 5% for April so I wanted to make sure all those numbers right.
Correct, and maybe kind of.
Tie them up.
Sure the <unk> and we've referenced 3% that is anchored towards our initial guidance. So it's still early in the quarter again April looks a lot like <unk>.
It all hinge on whats going on with new lease growth. So again, if we're sending out five 5% to 6% renewals through the remainder of two Q <unk>.
Expect to see a little bit of improvement in new growth into May and then we'll have to see what June has has to offer but today things are trending slightly better than that.
Got it. Thank you and then maybe on the affordability I think you've mentioned a few times that fewer people are moving out to buy homes more affordable to tourette now and that fewer of your tenants are reporting.
Affordability is an issue.
That suggests that there's actually more pricing power than youre, taking advantage of that so I'm curious if you agree with that and maybe what's preventing you from pushing more on rent given kind of these favorable trends you talked about.
I think that's where you see that spread between renewals and new leases. We are taking advantage of it today than we have been probably the last 18 months or so typically we're sending out renewals about 100 to $130 over market and so that's why you have basically a 5% spread between new lease and renewals today.
So we feel like were aggressively pricing that but also trying to keep in mind retention is a key factor for us and obviously helps drive new lease growth as well.
Alright, thank you.
Next question Alan Peterson with Green Street. Please go ahead.
Thanks, Mike in terms of your proactive using concessions in San Francisco can you share what other markets you're needing to be proactive in using concessions and you are you expecting to use concessions over the balance of the year to maintain this 96 mid 96 occupancy level.
Yeah, and what I would tell you it's been kind of more of the same similar again in April where we're seeing similar trends, we're still offering concessions in those pockets. It's in San Francisco parts of D. C and it's extremely minimal encases it down in the Sunbelt right now what I would tell you April again looks very similar.
Don't expect that we're going to go up more than call. It a week per new lease and going forward into the season demand is still strong we saw plenty of visits coming to the property. We're going to continue to balance that I don't expect concessions to be much of a drag on us.
I appreciate that and then maybe just shifting over to the D. C portfolio of for the deals that are maturing within the next 12 to 18 months are you guys seeing any weakness on lease up or are your development partners concerned about refinancing the more senior portion of those debt and construction loans.
Yeah, Hey, Alan just a I'll give some context on that I mean, I think youre right to focus on the near term we get questions on this leading up to the call as well as last night kind of try to understand if theres any stress on the system I'd say yeah.
Number one as mentioned earlier it is only 2% of enterprise value and when you look on attachment 11, B clearly fairly well diversified not just by market, but also maturity schedule and so we've got a couple of questions on capital stack. So I'll kind of address that here is a part of your question.
If you look at the overall capital stack for our D. C. P book and I'm going to kick out the portfolio a recap deal as well as the true Portland deals, which were also operating recaps, so a little bit different risk profile. So just looking at more of the development deals.
We've got about a 1.6 billion dollar cost for that development portfolio.
It was about 950 million of senior loan so call it 60% loan to cost.
Our commitment was about $350 million on those deals so 60% to 80% and then you had about $300 million of equity behind us. So.
Pretty good amount of equity sitting behind us on all those transactions when you focus on these upcoming maturities. Yeah, you got one in Philly, Santa Monica and Oakland, Yes, those are about $360 million of total cost.
When you look at the capital stack within those.
You've got a senior loan that's about 215 million commitment from UDR for the proportion of about 90, and we had about $55 million of equity originally behind us on those now we've continued to crew up our interest income so our basis today on a accrual basis, a little bit higher than that initial but still pretty sufficient equity behind us.
At this point in time, Yeah, we haven't taken any impairments on those.
Our of course, starting to have the discussions with our equity partners as well as lenders trying to think through what their plan is in terms of do they want to restructure do they want to exit through a sale do they simply want to extend with the senior and see what happens on a go forward basis. So.
No stress to speak of right now, but not to say it won't develop over time, depending on where refi rates are in the fundamentals.
Thanks for all those comments Joe Super helpful.
Thanks Al.
Next question, Florida talk with Evercore ISI. Please go ahead.
Good afternoon. Thanks for taking my question I guess the acquisition volume remains unchanged at zero and I Wonder are you see more distressed opportunities coming into the market and separately are you seeing a big slowdown in new starts or plan starts from maybe some of the competitors.
That much from users. Thanks.
Yep.
If Laura so yeah I guess.
Kind of bifurcate the stress comment into two different buckets. So there is there are distressed pricing and or are there distressed equity partners.
On the former would say no.
You are a seller and you're willing to meet the market at that plus or minus 5% cap rate range, we don't think of that as distress.
Not going to be able to buy a six cap in a five cap environment. So if you're a seller that's willing to meet the market and multifamily where you have pretty substantial capital flows. It's a preferred asset class and of course, we have the benefits of the <unk>, which are still lending kind of in that high four range. We don't think you'd see distressed pricing that you can of course see.
Deals on merchants that maybe got upside down got too far out over their skis in terms of underwriting or how they financed.
But that doesn't necessarily due to the stress pricing. So I don't think that's going to necessarily occur.
In terms of the forward pipeline and what's taking place in supply.
Turning to see it in some of the numbers with some of the starts and permit activity for multifamily coming off.
All at 5% to 10% from peak levels in 2022.
When you look at broader kind of total housing supply clearly the single family space haven't come off 30, plus percent and therefore total housing supply coming off about 20% you.
You are starting to see the impact of that it's probably not going to flow through until you get into the second half of 'twenty four and then 2025, so it's a ways out there.
I mentioned earlier within our DCP pipeline, just what we're seeing in terms of new deals is off dramatically, which tells you because of what's going on in the regional bank space, what's going on with ability to raise equity.
Youre going to start seeing fewer starts on a go forward basis. So we do think that's going to be a future tailwind.
Florida. This is to me just one thing to add to your calculus, when youre thinking about this.
The multifamily industry enjoys the benefit in partnership with the Gse's.
To provide a stable capital capital flow that helps transaction market continue to flow the refi market continue to flow and so there.
There is not this historical just everything's got to be sold and there is no capital. So it's mulcher time, if you will.
<unk> in the multifamily industry as long as we have the GSE. So it's a unique animal for us and very beneficial through periods like this as I mentioned earlier, our capital market's recession.
[laughter].
That's really helpful. And then maybe shifting to your technology I know UDR has been fairly active on the innovation front have you see any opportunity associated with artificial intelligence such as chat GBT all auto language model that can help create a father.
Technology efficiencies going forward.
Hey floor, we have seen that we've actually rolled out.
I chat text and call across the portfolio over the last 12 months and so that's already being utilized throughout our portfolio. There are going to be additional opportunities that we think going forward. We've already started sketching those out in terms of how to provide the customer kind of individualized responses how to give them more automated responses, but feel.
Like they are addressing their specific questions. They understand their specific history, what their issues could be so there's definitely going to be an opportunity for that in terms of the customer experience and providing them a better customer experience, but also from a cost perspective, how to bring our cost structure down. So we are looking at it I think it's pretty early days other than what we have.
On the AI chat side.
And sorry, just one data point to me again with respect to the AI chat piece.
Rising enough it closes better.
But we thought it would it's about a 10% higher closing rate on our sales than we've seen through a natural call center type template. So.
Customers embracing it so it must be working.
Great. Thanks, that's all for me.
Next question Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey.
Thank you good morning.
Really quick two quickie is first Joe on the insurance front is there opportunity for you guys to increase the amount that you self insure to try and mitigate some of the large premium increases or some of the carriers or reinsurers pulling back.
Yeah, Alex good question.
Absolutely and analysis, we go through every single year.
Looking at every single layer, how the layers are being filled in and how pricing is relative to loss history and so each year. We go through that analysis. So when it comes up for renewal again in December we'll go through that same analysis I think with.
Capacity, having pulled back in the space and despite premiums going higher it really hasnt returned.
Some of the.
Profit margins at these insurers are taken a pretty substantial relative to loss history. So it's one of the advantages have obviously been a pretty large diversified company, that's well capitalized relative to being a private operator that may not have that capability and has to just take on debt premium inquiry. So it's a it's something we'll be looking at.
Okay and then the second question just quickly you guys mentioned, the sunbelt being weaker but you also mentioned that your b portfolio isn't really being impacted by the supply. So just sort of curious if that was sort of a relative because east coast is performing better than you thought maybe you expected bad rather sunbelt.
Or if you're just seeing more sunbelt broadly, but not really about your assets in particular.
Hi, Alex I think I'd go back to East Coast, just doing better in general and where we are seeing pockets of weakness it's more in those urban settings in the sunbelt, because that's where the supply is coming from so that's why the beazer outperforming a little bit more down there than we would've expected going into the year.
Awesome listen thank you.
Thanks, Alex.
Next question Tayo Okusanya with credit Suisse. Please go ahead.
Hi, Yes, good afternoon actually my questions have been answered I, just couldn't figure out how to get off the queue. Thanks.
Thanks Dale.
Thank you I would now like to turn the floor over to Tom Tony for closing remarks.
This is Tom again, and thank you all for your time interest and support of UDR, We've established ourself as a full cycle investment that delivers above average growth and total shareholder return across a variety of macro environment.
We remain very enthusiastic about the apartment business and believe our operating capital allocation and an innovation advantages should deliver relative outperformance versus peers in 2023 and beyond and with that we look forward to seeing many of you at NAREIT conference in June as well as upcoming.
Digital event with that take care.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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