Q3 2024 UDR Inc Earnings Call
Greetings and welcome to UDR's third quarter 2024 earnings call.
Speaker Change: If anyone should require any option or assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded, and it is now my pleasure to introduce your host, Vice President of Investor Relations, Trent Trujillo. Thank you, Mr. Trujillo. You may begin.
Welcome to UDR's quarterly financial results conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the investor relations section of our website, ir.udr.com.
In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements.
Speaker Change: 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.
Speaker Change: A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements.
When we get to the question and answer portion, we ask that you be respectful of everyone's time and limit your questions to one plus a follow-up. Management will be available after the call for your questions that did not get answered during the Q&A session today.
I will now turn the call over to UDR's Chairman and CEO, Tom Toomey.
Thank you, Trent, and welcome to UDR's third quarter 2024 conference call. Presenting on the call with me today are President and Chief Financial Officer Joe Fisher and Senior Vice President of Operations Mike Lacy.
Senior Officers Andrew Kanter and Chris Venenz are also available during the Q&A portion of the call. Our year-to-date results continue to exceed our prior expectations.
Speaker Change: Due to the operating strategies we utilize to drive strong same-store and earnings growth in tandem with improving industry fundamentals.
Speaker Change: As a result, we raised our full-year FFOA per share guidance for the third time this year, while also improving our same-store revenue, expense, and NOI growth expectations for the second time this year, in conjunction with yesterday's earnings release.
Speaker Change: https://www.kenhub.com
Strategically, we remain focused on three drivers of growth that differentiate us from peers.
First, we continue to innovate, which is added to our bottom line in 2024 and will do so for many years to come.
This is evident in the results from our value-add initiatives, which have consistently grown in the high single-digit range and added 50 or more basis points annually to our same-store revenue growth.
Second, we continually listen to our associates and residents, which influences our operating tactics and long-term strategy.
The Customer Experience Project is a great example of this. The insight we glean from hundreds of thousands of daily touchpoints with existing and prospective residents.
Speaker Change: has translated into data on satisfaction. We use this information to orchestrate an enhanced UDR living experience, improving retention, and lower turnover costs and capital expenditures.
We are just scratching the surface and expect further enhancements in the customer experience project will support additional resident retention, advantages versus peers, and drive future margin expansion and cash flow growth.
Speaker Change: And third, although we remain in a capital-like mode, we maintain an investment-grade balance sheet with substantial liquidity.
Speaker Change: This positions us well to take advantage of growth opportunities when we have an attractive cost of capital.
Speaker Change: We continue to explore various forms of external growth, including joint venture acquisitions, OP unit transactions, and development to drive future accretion.
There's also a variety of positive fundamental drivers for our industry. These include...
Speaker Change: First.
Demand remains strong. Employment growth continues to surprise to the upside and income growth has outpaced consensus expectations.
This has led to more than 450,000 newly delivered apartment homes being absorbed nationally during the first nine months of the year, which is approximately 50 percent above the long-term average.
Second, the pace of new supply is slowing. 2024 multi-family completion marks a 50-year high, but absorption has been robust and pricing on lease up communities has remained rational.
Speaker Change: Total housing deliveries through the end of the year appear stable relative to the third quarter and start to continue to decline.
Speaker Change: We expect the trend of lower starts to persist due to the cost of capital and availability of capital.
Speaker Change: A future supply pipeline that is below historical average levels bodes well for rent growth in the years ahead.
and third, renting an apartment is approximately 60% more affordable than owning a single-family home in the markets where we operate.
the best level of relative affordability in two decades.
Speaker Change: These fundamental trends combined with our operating tactics that have improved resident retention have led to further revenue, expense growth, and performance.
Mike will provide additional details in his remarks.
Moving on, we continue to build on our position as a recognized leader in stewardship.
Speaker Change: With the release of the 6th Annual ESG Report, which we published earlier this month, we detailed the leadership UDR has continually exhibited in setting and achieving various environmental, social, and governance goals.
Speaker Change: Chris Fernandez and our sustainability team deserve credit for advancing our long-term environmental strategy.
Speaker Change: Collectively, our efforts have enabled UDR to become a more sustainable and resilient company, one that can thrive across a multitude of economic environments, and overcome challenges head-on.
Together, we have created a desirable workplace.
with an engaging employee experience that thrives on innovation and collaboration.
To my fellow associates, I look forward to sharing more success with you in the years to come.
Speaker Change: As a final thought, macro volatility, election uncertainty, the path of the Fed and their collective efforts on interest rates, the economy, and the employment market are all out of our control.
Speaker Change: However, I remain optimistic about the long-term growth prospects.
for our country and the multifamily industry.
Speaker Change: We will continue to focus on what we can control, enhance our dynamic and innovative culture, and empower our associates to deliver attractive results that create value for UDR's residents and stakeholders.
With that, I will turn the call over to Mike.
Mike: Thanks, Tom. Today, I will cover the following topics, our third quarter same-store results and early fourth quarter results, including regional operating trends.
and our improved full-year same-store growth guidance, including underlying assumptions.
To begin, third quarter year-over-year same-store revenue and NOI growth of 1.2% and 0.8% respectively were better than expected given difficult prior year comparisons.
Speaker Change: Our third quarter results were driven by first.
Speaker Change: 1.8% blended lease rate growth, which was driven by renewal rate growth of over 5%, and new lease rate growth of approximately negative 2%.
Second, 55% annualized resident turnover with nearly 200 basis points below the prior year period and more than 600 basis points better than our 10-year average.
This has enabled us to maintain healthy renewal rate pricing and led to more favorable blended lease rate growth.
Speaker Change: Byrd
Speaker Change: Occupancy averaged 96.3 percent, which is lower than our historical third quarter average.
This was strategic as we implemented enhanced AI screening and fraud identification tools.
used by our associates to enhance the overall credit quality of our residents and mitigate bad debt over the longer term.
Healthy levels of traffic and leasing volume combined with higher resident retention enabled us to increase occupancy in September and we finished the quarter at 96.5 percent.
and fourth, other income growth was approximately 5% and was driven by our continued innovation along with the delivery of value-added services to our residents.
Speaker Change: Shifting to expenses.
Speaker Change: Year-over-year same-store expense growth of 2% in the third quarter came in better than expectations.
Speaker Change: These positive results were driven by favorable real estate taxes, insurance savings, and constrained repair and maintenance expenses due to our improved resident retention.
Moving on, core operating trends have remained resilient in October and key metrics have largely followed typical seasonality.
First, October blended lease rate growth is roughly flat. On a like-term basis, which excludes the impact of short-term rentals, October blended lease rate growth is approximately positive 1%, which is slightly below September results and follows normal historical sequential rent growth trends.
Given the heightened volume of short-term lease expirations in the September to October timeframe, we expect the impact of short-term rentals on our lease rate growth should ease through year-end.
Effective new lease rate growth appears to have stabilized from September to October in the negative 5% range, while we have continued to have success executing renewal lease rate growth in the mid 4% range.
Regionally, the East Coast is showing the most strength with blended lease rate growth of approximately 2%.
This is followed by slightly positive blends on average in our West Coast portfolio, and the Sun Belt at approximately negative 3.5%.
Based on current trends, we expect East Coast leadership to persist through at least early 2025.
Second, resident retention continues to compare well against historical norms and October represents the 18th consecutive month our year-over-year turnover has improved.
Speaker Change: Relative affordability compared to other forms of housing is a benefit to the apartment industry in total.
Given the level of home prices and mortgage rates, the average cost of owning a home across UDR markets is nearly $5,600 per month.
Speaker Change: By contrast, the average rent for an apartment at UDR is approximately $2,600 per month, thereby creating annual shelter cost savings of $36,000.
This disparity has led to a record low level of residents moving out to buy a home.
We estimate that in order to return to historical averages of relative affordability between renting an apartment and buying a home, mortgage rates would need to decrease approximately 150 to 200 basis points, all else equal.
Furthermore, with the success of our ongoing customer experience project, our resident retention over the past year has improved by approximately 200 basis points relative to the peer group average.
Speaker Change: This is a testament to our team's focus and execution on our innovative, data-driven approach to customer service.
Ultimately, improved retention should drive better pricing power, higher occupancy, increased other income, reduced expenses, lower capex, and margin expansion.
We remain in the early innings of capturing these benefits and believe the opportunity in 2025 and beyond is to capture $10 to $25 million of incremental run rate NOI.
Speaker Change: Bird
Speaker Change: Occupancy has trended higher to 96.6% on average in October, a 40 basis point improvement from our year-to-date low of 96.2% in June.
Traffic is higher than the same time a year ago and our 30-day availability is less than 4% which supports our expectation of occupancy remaining in the mid 96% range for the remainder of 2024.
And fourth, other income is growing in the mid to high single-digit range.
Slightly higher than what we achieved in the third quarter. As a reminder, other income constitutes roughly 11% of our total revenue. We remain pleased with the trajectory of our other income initiatives.
such as the rollout and penetration of building-wide Wi-Fi, as these contribute significantly to incremental same-store revenue growth as well as our residents' experience.
Speaker Change: When considering these factors in more moderate prior year comparisons as compared to the third quarter, we expect year-over-year same-store revenue and NOI growth to accelerate in the fourth quarter.
Thank you.
Speaker Change: Turning to Regional Trends
The East Coast, which comprises approximately 40% of our NOI, was our strongest region in the third quarter, and Washington, D.C. was our best-performing market, driven by continued strength in Northern Virginia.
Third quarter weighted average occupancy for the East Coast was 96.5 percent.
Blended lease rate growth was nearly 4%, and year-over-year same-store revenue growth was approximately 2.5%.
With continued healthy demand and relatively low new supply, we expect this region to be our strongest through the rest of the year.
The West Coast, which comprises approximately 35% of our NY, has performed better than expected year to date.
Third quarter weighted average occupancy for the West Coast was 96.3 percent.
Speaker Change: Blended lease rate growth was slightly higher than 2%.
and year-over-year same-store revenue growth was approximately 2%.
Recent return to office mandates and increased office leasing activity in the Pacific Northwest has supported relative strength in our Seattle portfolio.
All incremental public safety and quality of life improvements have led to improved leasing traffic and occupancy in San Francisco. Absolute levels of new supply remain low at less than 2% of existing stock on average across our West Coast markets.
Speaker Change: which we expect will lead to a favorable supply-demand dynamic in the coming quarters.
Lastly, our Sun Belt markets, which comprise roughly 25% of our NOI, continue to lag our coastal markets.
Year-to-date revenue growth is largely in line with our original expectations and is supported by other income growth from our value-add initiatives.
Third quarter weighted average occupancy for the Sunbelt was 96.1%, blended lease rate growth was negative 2%, and year-over-year same-store revenue growth was negative 1.5%.
Among our Sunbelt markets, lease rate growth in Florida is holding up the best, while elevated new supply is negatively impacting our Texas portfolio.
Speaker Change: While our Sunbelt markets probably have more robust job growth than our coastal markets, and absorption of new supply has been tremendous, it has come by the way of concessions and a deterioration of pricing power.
Based on existing inventory, forthcoming supply, and leasing activity trends, our analysis suggests pricing stability in Denver, Dallas, Tampa, and Orlando in mid- 2025.
Speaker Change: The timeline for Nashville and Austin are elongated, and we would expect supply-demand equilibrium in late 2025 and into 2026 in those markets.
Speaker Change: Thank you.
Based on our year-to-date results, we raised our full year 2024 same-store growth guidance for the second time this year, in conjunction with yesterday's release.
Starting with same-store revenue growth, we raised our midpoint to 2.2% from 2.0%.
The 20 basis point increase is driven by, first,
A 10 basis point improvement in full year blended lease rate growth, which we now forecast to be approximately 140 basis points.
Using a mid-year convention, our updated blended lease rate growth expectations should contribute an incremental 5 basis points to 2024 same-store revenue growth.
Second, we expect the combination of austency and bad debt to contribute approximately 10 basis points to same-store revenue growth, an improvement compared to our prior expectations of flat.
and third, a five basis point improvement full year revenue contribution from innovation and other operating initiatives.
Speaker Change: Moving on to same-store expense growth, we lowered our midpoint by 60 basis points.
Speaker Change: to 4.4 percent.
Speaker Change: The improvement was driven by constrained insurance, repair and maintenance, and real estate tax growth.
As a reminder, same store expense growth of 7.5% in the first quarter was elevated due to coughing off a one-time $3.7 million employee retention credit we realized at the beginning of 2023.
Speaker Change: Thank you. Bye. Bye.
Speaker Change: Absent this factor, we would expect same store growth for the full year to be in the mid 3% range, or approximately 80 basis points lower than our updated midpoint.
Speaker Change: Looking ahead, the building blocks for 2025 same-store growth are coming into focus.
Based on a revised outlook, we are forecasting a 2025 same-store revenue earn-in of approximately 60 to 70 basis points, which is in line with our 2024 earn-in and is approximately half of our historical norm.
We will provide 2025 guidance in February.
Speaker Change: which will address our outlook for market rent growth, occupancy, fed debt, contributions from other income, and expense growth.
In sum, our diversified portfolio enables us to tactically adjust our operating strategy to maximize revenue and NOI growth, while continued innovation sets us up well for further margin expansion.
My thanks go out to the UDR Associates nationwide for your steadfast commitment during a period of unprecedented new supply. Together, we've delivered attractive results and have positioned ourselves for future growth.
Speaker Change: Finally, a special thanks to our teams in Tampa and Orlando for their immense efforts during the recent hurricanes.
Speaker Change: You undertook tremendous preparation to ensure the safety of our residents and fellow associates, minimized downtime at our properties, and promptly restored them to operable conditions.
Speaker Change: I have full faith that our people can continue to make a difference as we collectively work to return the vibrancy to these cities and improve the lives of many who have been affected by these storms. I will now turn over the call to Joe.
Thank you, Mike. The topics I will cover today include our third quarter results and our updated full year guidance, a summary of recent transactions and capital markets activity, and a balance sheet and liquidity update.
Joe: Our third quarter FFO is adjusted per share of 62 cents, achieved the midpoint of our previously provided guidance.
Speaker Change: This flat sequential result is typical between the 2nd and 3rd quarters when looking back at our history, and was due to nominal changes across NOI, interest expense, and G&A.
With our most difficult prior year comparisons now in the rearview mirror and a constructive operating trajectory into year-end, we have raised our same-store growth and FFOA per share guidance ranges.
Speaker Change: Our updated full year 2024 FFOA per share guidance range is $2.47 to $2.49.
The $2.48 midpoint would result in positive year-over-year growth despite record high supply and a more elevated interest rate environment.
Since providing initial guidance in February, we have raised FFOA per share guidance three times by a cumulative six pennies per share, or approximately 3%, and have improved the midpoints of our same-store guidance ranges twice, which Mike discussed in his remarks.
Speaker Change: The $0.63 midpoint is one penny, or 1.5% higher sequentially, and is driven by same-store NOI growth, additional lease-up NOI from recently developed communities, and lower interest expense.
Next, a Transactions and Capital Markets update.
Speaker Change: During the quarter, we executed several transactions under our Debt and Preferred Equity Program, which we have renamed from Developer Capital Program, given the shift in investment and risk profile towards stabilized operating assets.
First, we fully funded a $35 million preferred equity portfolio investment at a 10.75% rate of return on four stabilized communities located in Portland, Oregon as part of a recapitalization.
The risk profile is lower than a typical new development project, and positive cash flow allows for approximately two-thirds of our contractual return to be paid current in cash.
Speaker Change: Thank you.
Second, we received an approximately $17 million pay down on our preferred equity investment in Vernon Boulevard, located in Queens, New York.
Speaker Change: In conjunction with the pay down, we agreed to lower our rate of return from 13% to 11% to reflect the reduced risk in our remaining investment due to the development being completed,
Speaker Change: a more secure positioning in the capital structure, and an increased proportion of the contractual return to be paid current in cash.
Third, we originated a $31 million senior loan affiliated with our investment injunction located in Santa Monica, California.
The proceeds were used to repay in full the prior senior construction loan, which was scheduled to mature in January 2025.
Speaker Change: This activity enhances cash flow to the property and better positions UDR to control future outcomes.
Simultaneously, we recorded an approximately $8 million non-cash impairment loss due to a decrease in the value of the operating community.
Finally, our investment-grade balance sheet remains liquid and fully capable of funding our capital needs.
Speaker Change: Some highlights include
First, we have more than $1 billion of liquidity as of September 30th.
By extending the maturity date of our $1.3 billion Senior Unsecured Revolving Credit Facility to August of 2028, we have ensured ample liquidity for years to come.
Second, we have only $536 million, or 9% of total consolidated debt and approximately 2.5% of enterprise value, scheduled to mature through 2026, thereby reducing refinancing risk.
Speaker Change: 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 3.4 percent.
Speaker Change: And third, our leverage metrics remain strong.
Debt-to-enterprise value was just 28% at quarter end, while net debt-to-EBITDA RE was 5.6 times, which is approximately a half of a turn better versus pre-COVID levels.
Speaker Change: In all, our balance sheet and liquidity remain in excellent shape.
Speaker Change: We remain opportunistic in our capital deployment, and we continue to utilize a variety of capital allocation competitive advantages to drive long-term accretion.
With that, I will open it up for Q&A. Operator?
Speaker Change: Thank you, sir. At this time, we will 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 that your line is in the queue. You may press star 2 to remove a question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please, while we poll for questions.
And our first question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.
Great, thanks for taking the question. I appreciate all the color on other income and some of the initiatives you have on improving tenant credit.
But as we think about 25 and think about, you know, what growth contributed to 24 or what other income contributed to 24 growth Do you think it'll be the same more or less as we build out our thoughts on 25? I know you you talked about a multi-year view, but just in terms of the specific growth rate, what do you think you could do?
Mike: Hey Jamie, it's Mike.
I'd tell you first, when we think about 3Q, that 5% number was a little bit lower than we expected. I can tell you going into October and for the rest of the year, we're back in that plus or minus 8% range, and a lot of that's around the success of the initiatives that we're rolling out. And so, as we move into next year, my anticipation is that it's actually going to be pretty similar. I'd say in that 7% to 8% range again, and a lot of that has to do with...
The initiatives around Wi-Fi rollout, the success that we're having there, and just to size it. We had about $5 million in national auto initiative in 2024. My expectation right now is that's going to be close to double that number next year. So, that alone is a big initiative for us as it relates to other income.
Hey, Jamie, Joe, just maybe one other thing to add there, because I do think we've always been known for our ability to drive other income to a higher growth rate than the rest of the portfolio.
Speaker Change: But when you do look at a couple of our big initiatives out there, Mike mentioned one with Wi-Fi, but two of the other biggest initiatives we have going on, both customer experience and fraud prevention, these have material bottom line impacts, but probably won't show up to the same degree in other income. And so while other income gets a lot of focus,
Again, the same thing with fraud, with keeping some bad actors out the front door, having an impact on a multitude of line items, you'll see it be a little bit more dispersed in terms of where we're focusing our initiative efforts right now versus just other income. So just keep that in mind on a go-forward basis too.
and Michael Lacy. Thank you. Thank you.
Michael Lacy: That's very helpful, thank you. And then I guess as we think about the debt and preferred equity book, I know you said you had some redemptions, how do we think about 25? Like do you think you'll be able to maintain the balance? Do you think that you'll have more redemptions than ads, you think, or vice versa? Just trying to think about the impact on the growth right there.
I think you'll probably see us be able to plus or minus maintain it. It can be a little bit, I guess, episodic.
Speaker Change: from period to period. You know, you can see it come down for a quarter, back up for another quarter, but we do have a good amount of opportunities that we continue to evaluate. You know, they are primarily on the operating recap side.
Speaker Change: And thus, you saw us rename that part of the platform here in the quarter to just Debt and Preferred Equity Program.
Michael Lacy: We continue to see that shift from just funding development assets to more operating assets, so I think you'll see some payoffs as we go into next year, and as we continue to monitor those, we'll look at redeploying within that space and continue with that platform at plus or minus the level it's at today.
And the next question comes from the line of Austin Werschner with KeyBank Capital Markets. Please proceed with your question.
Hey everybody, thanks for the time. Mike, could you just clarify how you would define, I guess, stability with respect to your comment about some of the Sunbelt markets you referenced and then also
Michael Lacy: You highlighted same-store revenue growth is re-accelerating into the fourth quarter, but I'm wondering if you expect kind of effective lease rate growth or total revenue per occupied home, as you quoted, to also re-accelerate.
Speaker Change: Yeah, a couple of things there, Austin. Let me back up a little bit and just give a little bit of a high level on what we're seeing with.
Thank you for joining us.
So when you think about what we've communicated all year, first half, our blends were higher than what we expected. The back half of the year, they're pretty much right in line with where we thought. And I would tell you when you look at the different regions, they're all playing out where we expected today.
Michael Lacy: That being said, looking at our blends today, we're about 1.6%.
Speaker Change: As I mentioned in my prepared remarks, expectations will be around 1.4 for the year, so that implies flat blends through the fourth quarter.
and specific to what we're seeing in October.
This is playing out as expected. I'll tell you one thing I mentioned in my prepared remarks.
had a little bit of a change on us is
20% of our leases were impacted by short to long terms, and when I say that, that means a short-term lease typically has a premium associated with it, and then those people are coming off of...
call it September time frame from the summer months. We're signing 12-month leases today. That impacted our blends by about 100 basis points.
But when we fast forward and we look at November and December, it's actually about half of that exposure. So, less than 10% of our leases should be impacted by this.
Speaker Change: We've actually picked up about 60 basis points in occupancy, so we were running around 96.1, 96.2 during the third quarter. We're actually back up around 96.7, 96.8 today, and our blends, while they've decelerated a little bit, they've actually decelerated at a slower pace than what we've seen in the coastal markets, and some of this has to do with that short-to-long phenomenon that I just spoke to.
I appreciate all the detail there. And then also thank you for some of the stats on turnover, especially from a historical perspective. I mean, how are you guys thinking about that trend in 2025? And I don't know if you have this at your fingertips, but could you just give us a sense how much a 1% swing or so in turnover impacts expense growth?
We are still early innings as it relates to this initiative. We think there's a lot more room to gain. And so if I start there and then I can go into some of your specific questions.
For us right now, we have about 800 million data elements in the system that we've gathered over the last 7 or 8 years. And we're adding nearly 1 million data elements a day. And so a lot of information here. And I'll tell you over the last 12 months, so not even just this year, we've had about 1,800 less move-outs on a year-over-year basis.
and for us that translates to about nine million dollars in NOI.
When you think about going forward, we still think this is a 5-10% sustainable advantage that we can have over our competition. That's about $15-30 million in value.
And again, we know that this can be successful because 50% of turnover is control. When you have forwarding addresses and you see individuals that are just going across the street, they effectively failed us.
We failed them and they're moving out and we need to change that trajectory. And that's what we've been working on. That's what's playing out with the customer experience project.
So, yeah, when you look at that, those numbers I quoted earlier, we're about 600 basis points better than our historical averages for this time of year. A lot of our peers in a lot of the competitions are seeing this success as well in terms of just affordability. But when you look at our numbers versus the peers on a relative basis.
We were behind them about 170 basis points in the timeframe of, let's call it 2022 to 2023.
Speaker Change: Today, we're about 70 basis points better.
Speaker Change: And so you can see that the difference in our focus on the customer is paying dividends. Again, we think that this is going to continue to just get better as we continue to learn more with all the data elements in the system. And so what we're experiencing today when you look at R&M down.
around 3-4% growth. Our expectations...
Speaker Change: it would have been around 70-80% growth.
Speaker Change: And the next question comes from the line of Eric Wolfe with Citi. Please proceed with your question.
Eric Wolfe: Hey, thanks. You mentioned a handful of markets like Orlando, Tampa, and Dallas that could be in equilibrium. I think you said something like that by the middle of next year. Just curious what the implications of that are. Like does that mean that rent growth is going to a more normal level like 3%? Does that mean spring leasing season should be sort of more normal? Like what is, what does that mean in equilibrium?
Speaker Change: trying to figure out what our budgets look like next year. And so we typically do a top-down, bottom-up approach, working with the individuals out in the field, understanding what's happening at their specific sites.
within the markets, what supply is going to do to us, and then just having an understanding of the demand that's out there.
And so we're working through that process now. We typically button that up at the end of the year, but we have been having lots of conversations around the supply impacts.
especially as it relates to the Sun Belt, we do see that that's going to be an impact through the first three to six months of next year.
Ideally we do get back to that two to three percent range as you move throughout the year and maybe in the back half the year as you have easier comps it starts to get even better but in the first six months we do expect to see more of the same of what we're experiencing today in terms of blends in those markets.
Eric, this is Toomey. Just to add a little bit more color there, and it's a very good question. Mike highlighted the key elements of it. We know what the supply looks like. We know how it's getting priced. It's being very rational at this point in time.
what really is the variable on the table is job growth.
Speaker Change: and we've had a great number in 24, even after revisions, pretty solid. I think we're all kind of scratching our head and wondering what 25 brings.
Speaker Change: So it would be an adjustment based off of that. But every other part of the market, supply-demand aspect of it, seems to be in balance. And that's why I think Mike can say it looks like it's stabilizing.
Understood. That's helpful. And then I think you also mentioned that there's a 10 BIPs of embedded bad debt improvement for next year. Maybe I just misheard that, but I was curious if that means that you're expecting to end the year around 1.4% in bad debt and how you're thinking about any potential improvement from that level going forward.
Speaker Change: Thank you.
Speaker Change: Hey, Eric. So, yeah, the incremental improvement probably relates to 24.
We kind of started out the year on our original forecast with an expectation that we would be kind of mid-98s collected, kind of 98.5, 98.6, so kind of just under a percent and a half of bad debt. Where we're likely to shake up this year is probably just over 1%, so we had a little bit of a benefit in this year's numbers.
income and ID verification. We do expect that to have a continued benefit. We got some of it this year, some will come next year.
And it's not just in that revenue line item, obviously, it's in occupancy and term cost and capex, etc.
Speaker Change: But there's probably more to get there. We don't believe we're going back to the long-term average, though, I'll say that. So when you hear us say we're kind of the low ones today, if historical average is 40 to 50 basis points.
Very unlikely, we get all the way back to that.
Not necessarily due to having more bad actors, it's really just that the bad actors we do have, it takes a lot longer to get them out of the units than it did historically given some of the regulatory restrictions. So, still a little bit of a tailwind there, but we'll see how it shakes out next year.
Thank you.
Hey, Josh, check your mute, please.
Speaker Change: Oh, hey guys. I'll try to bring back the enthusiasm. I spoke into a dead mic. I'm sorry if I missed this in the opening remarks, but were your...
Josh: Were your short-term leases like much higher than normal? Is that what you meant by like 20% of leases were impacted by that short to long-term lease? I just want to make sure I understand that dynamic there.
Josh, that's a really good question. What I would tell you is it's a little bit higher than what we normally experience and I'd tell you a lot of that points to the job and demand dynamics that have occurred over the last
Speaker Change: and they're going to be talking about the future of the coastal market. We've been talking about this for about six months or so compared to kind of moving through COVID and then right after it. We did see a little bit more, especially in our coastal markets, of the potential for growth in the coastal market. So we're going to be talking about that. And we're going to be talking about the future of the coastal market. So let's get started.
where you had interns coming back to work. You had a little bit more job growth in these markets where people were coming for the summer and then they were leaving in the first part of fall. And so, yeah, a little bit more and it definitely impacted us more on the coast than it did in the Sun Belt.
Speaker Change: http://www.kenhub.com
And then maybe like tying that to the customer experience, is that something that maybe you want to reduce like those short-term leases? I would assume if you have more short-term leases or maybe just.
Speaker Change: Many crits, a little bit more friction with
the customer experience.
It does impact our turnover for sure. So when you have these short-term leases coming off, it does impact those stats, but at the same time when we look at this, it's all about profitability. And so an example I would give you is our short-term furnished program. Not only are we getting a premium for the short-term lease versus a 12 to 14 month lease.
but you're also achieving that positive income on that as well, so it hits our fee income.
And so for us, at the end of the day, it's a very minimal number. I'd tell you it's less than 1% of our total units at any given time, probably closer to 50 pips. And so we manage this by market, by property, to make sure that we don't have any overexposure to it. But we do go for the profitability piece.
Speaker Change: And the next question comes from the line of Nick Uliko with Scotiabank. Please proceed with your question.
Speaker Change: Thank you. Bye.
Nick Uliko: Thanks, guys. I just wanted to talk about capital allocation for a second. I know Tommy talked earlier about the capital light sort of focus of the company right now. And so I'm wondering, you know, you guys have that heat map, which I think was last updated in September.
Speaker Change: in terms of capital deployment. How are you thinking about stock flybacks right now? Because it does feel like there's a fair amount of interest in the private market to get ad sales done. It's potentially better pricing than where your stock is. So what are some latest thoughts on that?
Speaker Change: Hey Nick, so we are still in that capital light mindset and I'd say yeah you've seen us do stop buybacks a number of times in the past and I think we've done them from a pretty good perspective on timing you know we've generally seen some upside appreciation whenever we have done that.
Speaker Change: It's not necessarily on the menu at these prices today, though. You know, we've been kind of oscillating in the mid-45s here for a while, which kind of puts us in a plus or minus mid-5 cap type of number.
Speaker Change: We don't think that's fair by any stretch. Andrew can talk about where transaction pricing is today But we kind of settled into that plus or minus five cap world here for a while
That said, where we do want to deploy, I mentioned earlier, we're kind of in recycling mode within the DPE program. So as maturities come up, we'll deploy there.
Speaker Change: The other two areas that we're primarily focused on right now.
Speaker Change: We're hoping in 2025 we start to get some traction on that front again. You know, those are really driven by, you know, what do we view from a market, a sub-market opportunity, but also can we find those deal-next-door opportunities that are under-managed to put onto the ops platform.
We are looking at a couple of those right now. They are very long lead time typically and not all get to the finish line, so TBD on if anything comes with that. But that's really where we're spending most of our time today.
All right, thanks. That's helpful. Just following up then on the joint venture acquisition, so that now in the guidance is for none this year.
Speaker Change: potential in guidance earlier this year, can you just speak to, you know, what's driving that sort of, I guess, delay in getting some of those acquisitions done? If it's...
Your cost of capital, your partner's thinking, and then also, you know, is there an opportunity to expand to additional partners in that program given the capital that wants to get into the sector with a good operating platform?
Yep, no, good question. We did originally have
acquisitions and our original guidance throughout the year, which we've now taken to zero within the joint venture bucket.
I wouldn't say that it's a lack of opportunities. There's plenty of opportunities out there that can chuck a lot of boxes for us. That said, our partner and their source of capital, they go through a, every five years or so, big mandate review of all global mandates.
and we just happened to catch it during that period of time where it kind of went pencils down in the middle of the year as they re-evaluated everything. We're expecting in the next 60 days to come out of that just fine and continue to get back to work with them.
Speaker Change: given that fact, you know, as you ask about other potential joint ventures or partners
You know, we selected this partner for a lot of really good reasons, in terms of alignment with them, in terms of operational thinking, transactional thinking, and a really good and deep source of capital long term. So, really like the partners that we have and not really looking to add to that platform today.
And the next question comes from the line of Rich Anderson with Wedbush. Please proceed with your question.
Rich Anderson: Thanks. So on the
the former DCP platform now renamed.
for the reasons you explain, you know, doing more from a stabilized asset point of view. Why is that happening? Is that what the market is giving you? Or is there some sort of new governor you're placing on yourself in terms of the risk profile of what the money you want to put out? I'm curious as to why that change has happened.
Rich Anderson: You know, and in fact, the name changed as well.
Rich Anderson: Hey Rich, it's good to hear your voice. It's real simple. There's not a lot of development going on that pencils and makes sense.
Speaker Change: And we're going to always be thoughtful about the market and where the sweet spot is. And, you know, the transactions that we're doing, we get a current pay, we get a good return, and we still are at the table when the asset ultimately is going to trade.
and so it still has a good alignment with shareholders and capital allocation makes certainly a lot of sense at this juncture. You know, when we're back at 27 and everybody's announced a new wave of development, we'll probably rename the damn program and get back to that.
Okay, maybe it'll have the word Toomey in it.
Speaker Change: I don't think so. And good luck with Halloween tonight, my friend.
The second follow-up question is...
Bigger picture as I normally do like you have some interesting disagreement amongst your peers about the timing of
the Sunbelt recovery. I think you said pricing power returns in some cases mid-next year to late next year and that's probably a more optimistic view than what Equity Residential is saying and some of the others.
that you know are making their way into the space. You guys are already kind of at that efficient frontier 75-25. Do you have a view as to why there's a difference of opinion and but in terms of when we actually start to see change?
cash flow regenerate in the Sunbelt, whether it's next year or the year after? I'm just curious where you stand. I know you're saying pricing power returns, but does that mean cash flow also starts to return next year? Thanks.
Speaker Change: Hey, Rich.
Speaker Change: I guess I'd say, number one, when we went through the analysis, when did we reach equilibrium? And we're really talking about some of these markets like Dallas and Nashville, Austin that have been a little bit more hit by high supply.
Rich Anderson: We looked at typical absorption rates, what's available from a stock perspective today, and what's being delivered on a go-forward basis.
And we kind of got back to equilibrium, plus or minus, middle of next year, kind of 2Q, 3Q.
Rich Anderson: And so that's why we say we expect to see some pricing power return at that point in time. So renewals have been strong, but you will see supply coming down. And I think supply overall in the Sun Belt probably comes down from 4% to 5% of stock next year, down upwards of 30%. So you're down into that 2.5% to 3% of stock range.
Rich Anderson: Still above long-term averages on a full-year basis, so not back to typical pricing power for a full-year basis But you do get back to a better number potentially by the second half of next year
But time tell you, next year, second half, you start to get a little bit more pricing power than we had this year.
takes a while to obviously work its way into the rent stack and get through all the lease turns and get it into the cash flow so it's bit by bit and works its way into same store revenue growth but we think we'll start to see the signs of it mid to second half.
Speaker Change: Hey Joe, if I could just add one thing too, because one thing we've seen success in this year, compared to our peers and others that are talking about the Sun Bell, it's our other income.
and the initiatives that we have going on in those markets today. When we sit here and we talk about 7% to 8% growth on our other income line, our Sunbelt's been performing around the 12% to 13% growth compared to the Coast around 5% or 6%.
So significantly more coming from our initiatives down in those parts of the country. So that's been allowing us to do a fairly good job as it relates to relative performance, and we expect more of the same as we go into next year.
Speaker Change: And the next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.
Rich Anderson: http://www.kenhub.com
Good morning. I think in your prepared remarks you mentioned
John Kim: an improvement of blended lease growth rates to 140 basis points this year. That's up 10 basis points from prior. But at the same time, earn-in expectations are now 60 to 70 basis points, and last quarter it was 70. So, I know this is only 10 or 15 basis points, but I thought those two items would have been correlated positively, and it seems like they're not. I'm just wondering if that's the case.
John Kim: John, the way that I think about this and where Ernie is tracking today is...
and giving an example. If you go back to...
2Q through 4Q of last year, and you look at our blends,
Our 2Q growth was 3.1%, 3Q was 1.6%, and 4Q was negative 0.5%. So when you add all those up, you're right around 1.6% growth.
When you look at this year, our 2Q was 2.4, 3Q was 1.8, and our expectations right now is slack growth in the fourth quarter, that's about 1.5% growth. And so very similar blends on a nine-month trailing basis as you go into the new year. So earning today feels very similar to what we saw and experienced as we went into this year, as we said in the preparation class.
John Kim: John, let me ask a Mike follow-up question because I think sometimes we get, it's great to be precise.
Speaker Change: But when you're talking 10 bips or 100 bips on a $2,600 a month rent.
What does that equate to? You're looking at $26 on average for our rent, so it doesn't take much, and it's not a whole lot on the absolute number for our rent.
Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com
I think we all understand the supply pressures and the sunbells, but what other markets are you seeing?
the deterioration of new lease rates that were maybe a little bit surprising.
I'd tell you, first, maybe start out with the regions, and again, for us, the East Coast still performing the best on an absolute basis. And so, for October, what we're experiencing, and again, this is blends, I'll get into some of the new lease growth here in a second, our blends in the East Coast were around one and a half compared to...
three percent in third quarter. West Coast is closer to, call it, zero and a half.
Speaker Change: I'd say in October we're seeing around negative 3% plans and that compares to negative 2% in the third quarter.
But again, all these regions are seeing an increase in our occupancy.
Speaker Change: not only helping that line item, but it also helps our other income. That's leading to that increase from 5% other income growth to 8% as we move forward.
Speaker Change: and so...
That's what we're seeing on a regional basis, but to your question, new lease growth, kind of in the regions, is actually the coast where we saw a little bit more pressure on our new lease growth, and again, a lot of that has to do with what I referenced with
short-term leases going to long-term leases. In those markets, you typically have more interns, you have more individuals that are coming in for the summer, and we've been working through that. And again, just to remind everybody, our blends, we include everything. And so we don't typically talk about...
The short to long phenomenon, it's usually...
It is what it is. But in this case, it did have an impact on those coastal markets expectations again. It impacted October to a greater degree. It's probably going to be about half of that going forward. And then as you go into next year and you start to sign more short-term leases, it typically helps you out in the leasing season months.
And the next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
Good afternoon. Thanks a lot for taking my question. There's been some shoppiness in rental growth rates relative to typical seasonality over the last couple years. Is this variability within the normal range when you look back at the pre-COVID years or is there something that's leading to increased seasonal volatility and do you expect that to kind of continue going forward? Thanks.
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Yeah, for us, it goes back to the supply. If you look at places like the Sunbelt, and again, we've been talking about this all year long. We knew that this was going to continue to be a headwind for us. It's playing out exactly like we thought, but that is the difference between just normal seasonality. You are dealing with peak supply right now, and you're probably going to deal with it through the first and second quarter of next year.
John Kim: in a period of time where demand starts to fall off. So I'd say trajectory-wise, it feels pretty seasonal in nature, but at the same time, you do have a little bit more impact just coming from the supply market.
Speaker Change: Thank you.
I appreciate the thoughts there. And while you don't have a lot of lease-up exposure, I'm wondering how the absorption pace has been trending on new developments in UDR markets or at properties which compete with the UDR properties. How much are you feeling that pressure?
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You know, it's been pretty incredible. I'll give you an example, this time of year on our steam-wise assets.
Speaker Change: We typically see about 1.2% of our homes being leased in a given week. On our development deals, and one in particular down in Tampa, we're seeing about 3x that. So we've been leasing about 3% of our homes per week over the last few weeks.
And so, again, we don't have a lot of it today, not a lot of exposure, but what we do have is it's been leasing up, I'd say, fairly well.
And I think for the broader market when you look at some of the stats that are out there
obviously from a deliveries perspective.
you know nationally we're kind of at 30 or 40 year highs but when you look at absorption
John Kim: We're also at kind of 30 or 40-year highs, so when you look at private market deliveries and what they're seeing absorption, they're generally getting about 15 to 20 units a month, which is pretty standard on their side.
John Kim: And so that's what's leading to, you know, better rent growth than we originally forecast. It's leading to better absorption, a little bit less of a concessionary environment than we forecast originally. I think a lot of that has to do with that relative affordability piece. You know, obviously jobs have been there this year, wages have been there.
But rentership is continuing to take well more than their fair share just given how incredibly expensive it's become to own a home.
John Kim: I think if you go back to pre-COVID, single-family home prices are up 50% and going back to 2019 at the same time that mortgage rates are up materially.
It's that relative affordability of the alternative option, single family housing. So that's, I think, probably the biggest story this year that we've seen from people coming in the front door and then not leaving the back door.
Speaker Change: And the next question comes from the line of Adam Kramer with Morgan Stanley. Please proceed with your question.
Hey guys, thanks for the time. When you're thinking about, you know, potentially starting your own new developments here, you know, how close would you say you are in terms of kind of potential yields on developments relative to your cost of capital? What's that spread and what would that spread need to be for you to, you know, kind of start a new project?
Hey Adam, it's Joe. I'd say we're having a lot of active discussions on that topic right now. We've got a number of good parcels and projects that are
Speaker Change: shovel ready and ready to go.
John Kim: What we continue to debate is the current yield and the stabilized yield relative to that cost of capital.
The fact that we haven't started any thus far this year kind of tells you that we're not quite there.
John Kim: We do feel that we're getting close. Obviously, with a somewhat volatile interest rate environment, it creates a little bit more volatility in what that source of capital is and the price of that capital. So you want to make sure that you've accounted for that. And then, obviously, really locking into what we think the rents are from a tenability perspective.
John Kim: So I think we're close. You'll probably see some starts going forward. They may not be this year, but definitely in 2025 most likely.
But a good follow-up, Joe, might be explaining our approach on redevelopment, because redevelopment pencils a heck of a lot quicker than development.
Yeah, yeah, we've continued to have a lot of success both on the redevelopment side and then NOI enhancing front So we're spending plus or minus 75 million dollars this year just on redevelopment opportunities
And so, going in and doing, you know, from...
you know kind of a renovation light just kind of a KMB type of upgrade to more of a fulsome repositioning of assets and so we've had really good opportunities on that front.
We've got a good pipeline there that we'll take into next year and probably have another $75 million, maybe upwards of that, into 2025 as well. So deploying capital on that front, refreshing the portfolio, and trying to get the consumer a better product, also raising the NOI profile.
Speaker Change: Great. I appreciate all that color. And I was going to ask about kind of capital allocation priorities here, you know, given the development commentary, but it seems like this redevelopment program is high on that list. Is that right? I mean, I think you guys talked a little bit about repurchases earlier, too. It seems like that's lower on the list at this point.
Speaker Change: Correct. Yeah, the redevelopment...
generally is a pretty core part of the business that we're always going to be doing in some way shape or form. We'll pivot it a little bit higher a little bit lower depending on cycle and opportunities.
looking for joint venture acquisition opportunities and focusing in on some of these creative OP unit transactions that we're finding out there on the market.
And the next question comes to the line of Alexander Goldfarb with Piper Sandler.
Speaker Change: Please proceed with your question.
Hey, good morning. I think it's still good morning out there. Just two questions. First, Joe, just going to the Queens...
Speaker Change: The Long Island City Project.
Can you just walk us through the decision to take the coupon down? You know, there are other players in REITland that do debt-preferred equity, and, you know, it stood out. So you guys are a pretty big company, plenty of liquidity, so it's not like you couldn't take control of the project if you had to. So can you just walk us through the strategy of reducing the coupon?
Sure. Alex, this is Andrew. It's good to talk to you.
So I think it's important to just go back and...
John Kim: and I...
to go back and just...
John Kim: start from the beginning on this project. When this project started in the fourth quarter of 2019, it was raw land.
John Kim: The construction on this deal was completed in 2022, and it's stabilized in the first part of 2024. Our partner came to us and wanted to recapitalize the deal. As a reminder, they put in $42 million into this deal. They paid off $25 million in PREP and then reduced our accrual by about $10 million.
The way that it's structured, about 70% of our coupon will be paid current.
John Kim: You know, the top dollar on this deals in like the 60, the kind of mid 60% LTV.
and our basis is below $500,000 a door. So for us, we like our partner, we like the product, we know it well. So this was an opportunity for us to reinvest in something we wanted to reinvest in, not something that we had to reinvest in. As Joe talked about,
You know, we are in this situation where we get paid back and we have to go find new opportunities. We felt this opportunity was one we would invest in, and so we made the decision to lower the rate because we're in a much lower risk situation than we were when it was under development.
So just to drive that home, Alex, I want to make sure.
You understand, it's not one of the watch list deals that we had, this wasn't a deal that was under distress.
John Kim: It was simply a choice on our part of, do we take the last $50 million back in our investment and get paid off fully and take that $50 million and go find a new opportunity and put our team to work on something new, or just take a deal that we know with a partner we know and say, we'll let $50 million stay out there, but given the change in risk profile, the market rate for that investment has definitely come down from when it was a development.
Okay, so what you're saying is, the guy could have, he had the capital, you're saying he had the capital to pay you off, you just chose to not, effectively to put back in rather than getting paid off fully. Is that what you're saying?
Correct. They put $42 million of additional fresh equity into that deal, paying down a portion of our PREF, but we also had a PREF partner in our position that was Perry Passeu with us.
Speaker Change: So pay down that entire partner's position. So our last dollar of risk came down materially with a lot of fresh equity coming into the deal. And as Andrew said, at 60 plus percent LTV, 70 percent current pay, the risk profile changes materially from a new development that was earning 13 percent to now a stabilized deal earning 11.
Speaker Change: Okay second question is on the short-term leases
You know, this isn't new like this is part of always happens, you know interns their short-term leases or other reasons
Speaker Change: So, is there something unusual about this year's short-term leases?
Speaker Change: or it was part of the normal budgetary mix and the whole discussion about short-term leases is just walking us through. I'm trying to understand if there was something unusual about this year with the short-term leases or if it's just a discussion of explaining why some of the rent trends happened the way they happened.
Speaker Change: Yeah, it's kind of both. Alex, I'll tell you, we get a lot of questions just around blends in general, and since everybody kind of has different definitions, some people do the like for like, some people do everything. We wanted to make sure that we're
clearly showing what it looks like on both a like-for-like as well as all-in basis. And then for us, like I said earlier, it was a little bit more of a factor than we would have expected this time of year just because we did have more interns coming in. We actually did see more people that were taking short-term furnished rentals throughout the summer. And so, I'll tell you, for that program alone, I saw about a 20% to 30% increase in our fee income, which tells me that we did have significantly more.
people doing those type of leases and so we're just cycling off of them and so just in full transparency that's what we're providing.
Alex, a little bit more color. I mean, how often do you have this type of supply?
being delivered at the same time that you're losing the short-term rental play. And so that's why you see it's probably more, if you will, exaggerated than it is a reality. And as I expect it to go forward, it'll probably start looking a lot like the last 30 years.
Speaker Change: And the next question comes from the line of John Polowski with Green Street, please proceed with your question
John Polowski: Hey, thanks for keeping the call going. Just one question on expenses for me so I can get a handle on two line items that have been really volatile over the last several years, personnel and repair and maintenance.
So obviously personnel saw a pretty big cumulative decline, 21 to 23. Some of those costs were pushing to R&M and then you had pandemic impacts on R&M. So the question Joe is, is the operating model in terms of the bodies, UDR bodies on the ground, both in personnel and R&M functions
stabilize today or should we continue to expect to see above inflationary costs continue for personnel and R&M?
I would tell you it's better than stabilized going forward. And so we've been working through a lot of those changes, as you alluded to, with personnel and R&M.
pay our teams based on performance. And so when you look at our relative performance versus our peers...
through the first six months of the year.
John Polowski: They were doing a really good job in terms of top line revenue against the peers within their markets.
John Polowski: And so some of our personnel costs were due to that. And then I'd say on turnover going forward, we're going to continue to lean into that customer experience project.
John Polowski: We expect that our turnover will continue to be down, and I tell you, in fact, looking at October numbers, we're looking at probably the 19th consecutive month with year-over-year reduction in turnover. So, I think going forward, these line items will be more muted than they have been in the past.
Thank you for watching. Please like and subscribe. See you next time.
okay is there any is there still a tail on basically heavily damaged units from evictions that will prop up these basically the repair maintenance expense growth next year a little bit more than typical inflationary levels
I don't think so. When we look at kind of that population of squatters, if you will, it's back to those historical norms of a plus or minus a couple hundred, and we're not seeing people that are doing that.
John Polowski: that are in there damaging to the same degree that we saw during COVID. And so I don't think that that's gonna be as much of a factor as we move forward.
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Speaker Change: Thank you.
And the next question comes from the line of Alexander Kim with Zellman & Associates. Please proceed with your question.
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Hey guys, thanks for taking my question. I know we covered a lot of ground today, but I just wanted to ask about the wider third quarter spread you recorded between your renewal and new move in rank growth figures.
Michael Lacy, Trent Trujillo, Michael Lacy, Thomas Toomey
We're not seeing our move-out reasons for rent increases increase.
And so we are going to continue to send out plus or minus 4% to 4.5%.
into the future here because our turnover looks great. We think everything we're doing on our customer experience project is paying dividends. And so not only will our turnover be better, but we do believe that we can maintain a pretty high renewal growth as we move forward.
Got it. Makes sense. That's it for me. Thanks for the time today.
Speaker Change: And the next question comes from the line of Linda Tsai with Jeffries. Please proceed with your question.
Thanks, this one for me. In terms of the $5,000 benefit from saving customers slash reducing turnover, are there any upfront costs associated with improving that churn? And if so, does that go down over time?
We're proactively reaching out to them now and just trying to identify what those issues are, how we may be able to solve them, can we do it quickly, and then at times we are offering gift cards, small concessions here and there, if there's something that we did wrong that we can improve on, and so they're minimal cost today, but it's something that we're continuing to learn from, and so as we move forward, I think we're going to find the sweet spot on
Speaker Change: what those gift cards are and I don't think it's...
It's equal for everyone. We have residents that have been with us for multiple years that pay penthouse level rents versus some that have been with us for a short period of time and they may be in a studio. It's not a one-size-fits-all, but it is something that we're identifying and we're proactively reaching out on.
Speaker Change: I think, too, with all the data that we have now that Mike was talking about earlier, it's less about additional cost. I think it's being smarter with the resources that we do have. So what were the things that we thought were value-add that we were doing that perhaps the customer didn't find value in?
And so, pivoting on our individual people resources, but also on the capital side, trying to figure out where we can spend our capital in a smarter way to address recurring issues that pop up.
either at an individual level or at a property level that have caused some consternation and therefore turnover. So it's not necessarily added cost, but I think the data that we have is making us much smarter on where we do expend resources today.
Speaker Change: Linda, just because I love this topic and you can hear the passion from the team on it and the potential of it, I mean we set out on a goal really to just change how this business is done.
And if it's historically always been 50% turnover and you can find a path to 40% or lower, you dynamically change the margin.
your pricing power, your cost structure, your CapEx. You changed how the whole damn business is done.
John Polowski: and we have now the resources, the capability, and the culture.
to actually drive through this and expand that margin. And ultimately, who wins in margin usually wins the long game.
So, it's a long journey.
John Polowski: We're in the early innings of it. You can see the early inning results and we're encouraged by the long prospects of this project effort and its value for our shareholders.
Speaker Change: Really helpful, thank you.
Speaker Change: Thank you.
And the next question comes from the line of Hondell St. Juice with Missouho Securities.
Speaker Change: Thank you.
Speaker Change: Apologies, no longer in the queue. There are no further questions in the queue. I'd like to hand the call back over to Chairman and CEO Mr. Toomey for his closing comments.
Mr. Toomey: Thank you for all your time and interest and support of UDR. I know the call went a little long today, but I find it very beneficial when we expand upon how we think about the business, how we're running it, and how we are going to continue to improve it.
Mr. Toomey: So, we look forward to seeing many of you at NARIT conference in November and certainly a lot of other upcoming events. With that, take care.
Speaker Change: Ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
John Polowski: [music]
John Polowski: [music]