Q4 2024 UDR Inc Earnings Call
Greetings and welcome to Udr's fourth quarter 2024 earnings call.
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Speaker Change: It is now my pleasure to introduce your host Vice President of Investor Relations Trent Trujillo.
Thank you Mr. Trujillo you may begin.
Speaker Change: Thank you and welcome to Udr's quarterly financial results Conference call. Our press release supplemental disclosure package and related Investor presentation were distributed yesterday afternoon and posted to the Investor Relations section of our website IR Dot UDR dotcom.
Speaker Change: 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.
Speaker Change: Do not undertake a duty to update any forward looking statements.
Speaker Change: 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.
Speaker Change: I will now turn the call over to Udr's, Chairman and CEO Tom Toomey.
Tom Toomey: Thank you Trent and welcome to Udr's fourth quarter 2024 conference call.
Speaker Change: Presenting on the call with me today are president and Chief Financial Officer, and Chief Investment Officer, John Fischer, and Chief Operating Officer, Mike Lacey.
Speaker Change: Senior Officer, Andrew Kantor, who will also be available during the Q&A portion of the call.
Speaker Change: Okay.
Speaker Change: First I'd like to congratulate Mike on his well deserved promotion to Chief operating officer, and Joe for his appointment as Chief investment Officer.
Speaker Change: Well, it's Mike and Joe Lapin exceptional leaders.
Speaker Change: Value creation and have positively influenced udr's culture as Joe transitions from his role as CFO. We have commenced an executive search process to fill this critical role.
Speaker Change: We are early in that process and we'll update you as progress is made.
Speaker Change: Moving on in conjunction with our earnings release, we published a presentation that highlights our outlook for 2025.
Speaker Change: Complete with what we see as the drivers of potential outcomes.
Speaker Change: Our prepared remarks align with the presentation and those on our webcast can see the slides on your screen.
Speaker Change: We will resume our usual format for the balance of earnings calls in 2025.
Speaker Change: Next turning to slide four key takeaways from our release in 2025 outlook are.
Speaker Change: <unk> fourth quarter and full year 2020 for ethical way per share result that guidance expectations, while the same store results exceeded our guidance midpoint.
Speaker Change: Two based on consensus estimates, we expect economic growth and apartment demand will remain resilient in 2025.
Speaker Change: This growth profile should be enhanced by supply pressures abating in the back half of the year from the historically high levels experienced in 2024 three.
Speaker Change: Three ongoing.
Speaker Change: Ongoing investments in innovation, including advancing our customer experience project.
Speaker Change: It should continue to drive incremental NOI growth in excess of the broader market in 2025.
Speaker Change: Fourth despite an elevated cost of capital we are positioned to take advantage of external growth opportunities when appropriate.
Speaker Change: We will continue to utilize various sources of capital, including existing joint ventures, and operating partnership unit deals to Accretively grow the company, while heating costs capital signals.
Speaker Change: Fifth and final.
Our balance sheet is well positioned to fully fund our capital needs in 2025 and beyond.
Joe Lapin: With that I'll turn the call over to Joe.
Joe Lapin: Thank you Tom.
Joe Lapin: Next I will cover today include our fourth quarter and full year 2024 results, including recent transactions the.
Joe Lapin: The 2025 macro outlook the drives our full year guidance.
Joe Lapin: And the building blocks of our 2025.
Joe Lapin: First beginning with slide five.
Joe Lapin: Our fourth quarter and full year <unk> as adjusted per share of 63 and $2.48 achieved the midpoint of our previously provided guidance ranges. Additionally, our same store results beat expectations with NOI growth that was above the high end of our guidance range.
Joe Lapin: During the quarter, we shifted to an occupancy focused strategy similar to the fourth quarter in past years and built occupancy going into 2025.
Joe Lapin: Occupancy trended sequentially higher for each month during the fourth quarter resulted in a 50 basis point sequential improvement versus the third quarter.
Joe Lapin: As anticipated this occupancy pivot resulted in slightly lower blended lease rate growth versus original fourth quarter expectations, but it was the right decision to maximize NOI in 2024 and place our portfolio and a position of strength as we enter our traditional leasing season.
Joe Lapin: Thus far in 2025, we have maintained occupancy above 97%, which is approximately 30 basis points higher than our fourth quarter average.
Underlying market rent growth that's turned positive sequentially.
Joe Lapin: And then it's following normal seasonal patterns.
Joe Lapin: New lease rate growth is largely bottomed across our regions and renewal lease rate growth remains healthy in the mid 4% range.
Joe Lapin: We are encouraged by these results.
Joe Lapin: Turning to slide six and our macro outlook.
Joe Lapin: As in years past, we utilized top down and bottom up approaches to set our 2025 macro and fundamental forecast.
Joe Lapin: 2025 rent growth forecast of 2% was informed by third party forecast and consensus expectations for a variety of economic factors that drive rent growth and our internal forecasting models.
Joe Lapin: Among the positive factors are favorable GDP job and wage growth a continued decline in homeownership rate due to elevated mortgage rates and lower total housing supply.
Joe Lapin: We combined this top down forecast with a bottom up growth estimate built by our original teams as they best understand the local supply and demand dynamics in their markets.
Joe Lapin: Our 2% rent growth forecast for 2025 is slightly conservative when compared to prominent third party forecasters estimates in the mid 2% range.
Joe Lapin: In short our outlook is driven by stable demand set against declining multifamily supply well factored and macro uncertainties, such as immigration reform and regulatory risk.
Joe Lapin: Turning to slide seven.
Joe Lapin: We remain encouraged by a variety of key supply and demand metrics that are supportive of positive near to intermediate term fundamentals for the apartment industry.
Joe Lapin: First at the top left.
Joe Lapin: Our residents' financial health remains resilient with rent to income ratios below the long term average.
Joe Lapin: Second at the top right.
Joe Lapin: Relative affordability versus alternative housing options remains decidedly in our favor at roughly 60% less expensive to rent them out a 25% improvement from pre COVID-19.
Joe Lapin: This supports a stable to declining home ownership rate and absent a major correction in home prices or a significantly more accommodative long term interest rate environment, we do not expect this dynamic to change.
Joe Lapin: Third at the bottom left the latest census data indicates that the largest U S age cohorts remain in their prime renter years.
Joe Lapin: This should provide continued support for long term rental demand.
Joe Lapin: And fourth at the bottom right well multifamily deliveries are expected to remain above historical average levels at the beginning of 2025.
Joe Lapin: Development start activity has significantly retreated.
Joe Lapin: Approximately 65% from recent highs and is now well below historical averages this should benefit rent growth in late 2025 and beyond.
Joe Lapin: Moving onto slide eight.
Joe Lapin: Third party data providers are forecasting full year 2025 multifamily deliveries in the U S and in our markets to be similar to the historical averages.
Joe Lapin: Just on development completion data.
Joe Lapin: Peak deliveries occurred in the middle of 'twenty, 'twenty, four and should trend downwards below long term historical averages and the second half of 2025.
Joe Lapin: We are cognizant that there will be supply slippage as we move through the year and the lease up concessions could remain prevalent for a period of time after the pace of new deliveries abates.
Joe Lapin: Our concessions move throughout 2025 will be a key driver to our ability to capitalize on our rent growth forecast.
Joe Lapin: On slide nine we provide more context on which regions and markets are expected to feel the greatest impact from 'twenty to 'twenty five supply.
Joe Lapin: The sunbelt is forecast to face new supply deliveries to the tune of approximately 4% of existing inventory, which is twice as much as coastal markets.
Joe Lapin: Positively sunbelt supply is down by nearly one third compared to 2024 completions, while new supply across our coastal markets is on average similar to 2024.
Joe Lapin: Mixing this altogether, we arrive at our 2025 guidance, which is summarized on slide 10.
Joe Lapin: Primary expectations include full year at total weight per share guidance of $2.45 to $2.55.
Joe Lapin: And same store revenue and expense growth expectations, the translate to NOI growth of 1.75% at the midpoint, which is 25 basis points better than full year 2024 results.
Joe Lapin: Slide 11 shows the building blocks for our full year 2025.
Joe Lapin: Per share guidance at the $2 50 midpoint.
Joe Lapin: Which represents a 1% year over year increase drivers.
Joe Lapin: Drivers include a.
Joe Lapin: A 10 Penny increase from same store revenue and lease up income from recently developed communities.
Joe Lapin: Offset by a by five Penny decrease from same store expenses.
Joe Lapin: A one penny increase from interest expense due to a lower average debt balance, which mitigates the impact from the midyear exploration of certain hedges.
Joe Lapin: One penny decrease from G&A and property management expenses reflective of inflationary wage growth.
Joe Lapin: And a three penny decrease from joint venture and debt and preferred equity activities due to a combination of the following two items.
Joe Lapin: First a two penny decrease attributable to moving to non accrual status for our debt and preferred equity investment and 1300 Fairmount located in Philadelphia, which we previously disclosed.
Joe Lapin: And second a one penny decrease attributable to the pending sale of the company affiliated with a one off technology investment.
Joe Lapin: Should the transaction occur.
Joe Lapin: It's $43 million of notes receivable that earn 12% interest would be converted into equity of the acquiring company.
Joe Lapin: We are excited that the company, we chose to support and help build is expected to be acquired by an industry leader and exchanging our notes for equity is the prudent long term economic decision.
Joe Lapin: We have received various inquiries pertaining to the risk in our debt and preferred equity book. So here are important considerations to help provide transparency.
Joe Lapin: 1300, Paramount was our largest investment risk.
Joe Lapin: And by moving that investment to non accrual status and taking a reserve. We believe we have largely derisked. This book of business.
Joe Lapin: There remain two investments on our watch list total landed blocks about like $40 million, which would represent one penny or less than half a percent per share in the event of nonaccrual.
Joe Lapin: However for these investments we have been encouraged by their recent operating trajectories and a senior loans for each do not mature until mid 2026.
Joe Lapin: Moving on to slide 12, and specific to the first quarter, our ethical way per share guidance range is 60 to.
Joe Lapin: 62 cents or approximately 3% sequential decrease at the 61 cent midpoint.
Joe Lapin: This is driven by.
A one penny decrease from same store NOI, primarily due to higher expenses attributable to normal seasonal trends.
Joe Lapin: And a one penny decrease from a lower debt and preferred equity investment balance due to recent paydowns and the aforementioned tech investment.
Joe Lapin: Last on slide 13, we provide our debt maturity schedule and liquidity.
Joe Lapin: Only 10% of our total consolidated debt matures through 2026, thereby reducing future refinancing risk.
Joe Lapin: Bind with more than $1 billion of liquidity.
Joe Lapin: The $211 million of proceeds from our recently completed first quarter property dispositions.
Joe Lapin: Minimal committed capital and strong free cash flow our balance sheet sits in an excellent position.
Joe Lapin: And all our balance sheet and liquidity remained in excellent shape, we remain opportunistic in our capital deployment, we continue to utilize a variety of capital allocation competitive advantages to drive long term accretion.
Joe Lapin: With that I will turn the call over to Mike.
Mike Lapin: Thanks, Joe today I'll cover the following topics.
Mike Lapin: Our 'twenty 'twenty four results and other drivers factored into the building blocks of our full year 2025 same store revenue growth guidance.
Mike Lapin: An update on our various innovation initiatives expectations for operating trends across our regions and our 2025 outlook for same store expense growth.
Mike Lapin: Turning to slide 14.
Mike Lapin: The primary building blocks of our 2025 same store revenue growth guidance include our embedded earn in from 'twenty to 'twenty four lease rate growth.
Mike Lapin: Our blended lease rate growth expectations for full year 2025 in.
Mike Lapin: And contributions from our innovation and other operating initiatives.
Mike Lapin: Starting with our 2025 Vernon of 60 basis points, which is about half of our historical average and in line with our earn in from a year ago.
Mike Lapin: 50 basis points sequential increase in average occupancy we achieved during the fourth quarter of 2024 led to slightly lower blended rate growth and resulted in earnings towards the lower end of the range that I spoke to on our third quarter earnings call.
Mike Lapin: We believe this was a prudent operating strategy that will position us well as 2025 progresses.
Mike Lapin: Next portfolio blended lease rate growth is forecast to be approximately two 5% in 2025.
Mike Lapin: This is 100 basis points higher than what we achieved in 2024, which matches our expectations for year over year rent growth improvement.
Mike Lapin: We expect volumes will be lighter through the first half of 2025 before improving during the second half of the year and supply pressures lost them.
Mike Lapin: This dynamic if accurate means that blended rate growth should contribute approximately 90 basis points to our full year 2025 same store revenue growth and have a positive flow through impact on 2026 and earn an.
Mike Lapin: Underlying our blended rate growth forecasts are assumptions of approximately 4% renewal rate growth in 2025, and approximately 1% and the strike will on average.
Mike Lapin: Moving on innovation and other operating initiatives are expected to add approximately 65 basis points to our 2025 same store revenue growth, which equates to $10 million to $15 million or approximately 7% growth for this line item.
Mike Lapin: The bulk of this growth should come from the continued rollout of property wide Wi Fi other property enhancements such as further penetration on package lockers improved retention and less fraud.
Mike Lapin: For retention our guidance assumes that our 2025 resident turnover will be 100 basis points below that of 2024, equating to approximately $3 5 million of higher cash flow.
Mike Lapin: This improvement should be driven by our proprietary customer experience project, which helps us improve our residents' experience throughout their time with UDR, thereby increasing their probability of renewal.
To date, our efforts have resulted in higher resident retention on a year over year basis for 21 consecutive months.
Mike Lapin: We continue to enhance how we measure map and orchestrate the customer experience, which we believe will drive further year over year improvement in turnover and margin expansion in the years ahead.
Mike Lapin: Last we expect the combination of higher occupancy and reduced bad debt to provide a modest positive contribution to same store revenue growth in 2025.
Mike Lapin: Regarding fraud for call that mid 2024, we implemented a variety of AI based detection measures process improvement and credit threshold reviews to enhance our upfront resident screening.
Mike Lapin: <unk> seen the benefits of these efforts and recent bad debt trends, resulting in more favorable results in recent quarters.
Mike Lapin: Rolling all of this up our 2025 same store revenue guidance ranges from 1% to 5% to $3 two 5% with a midpoint of 2.25%.
Mike Lapin: The $3 two 5% high end of our same store revenue growth range is achievable through improved year over year occupancy additional accretion from innovation and blended lease rate growth that occurs more ratably throughout the year or at a higher level than our initial forecast.
Mike Lapin: Conversely, the low end of $1 two 5% reflects the adverse scenario with full year blended lease rate growth closer to flat.
Mike Lapin: Some level of occupancy loss in delayed income recognition from our innovation initiatives.
Mike Lapin: Turning to slide 15, and our regional revenue growth expectations. We expect the coast will continue to perform better than the Sun belt in 2025 led by the East Coast.
Mike Lapin: The East Coast, which comprises approximately 40% of our NOI is forecast to grow same store revenue by 2% to 4%.
Mike Lapin: We expect New York, and Washington D C to be our leading markets in the region continue in 2020 fours trends.
Mike Lapin: We're slightly more cautious on Boston due to peak supply deliveries that are expected to occur mid year, which could result in some pricing pressure.
Mike Lapin: The West Coast, which comprises approximately 35% of our NOI is forecast to grow same store revenue by $1, two 5% to $3 two 5%.
San Francisco, Seattle, and Orange County are expected to produce upper tier growth, while Monterey peninsula is forecast to be softer some of which is due to the recently enacted rent control.
Mike Lapin: Well I asked our sunbelt markets, which comprise roughly 25% of our NOI are forecast to have same store revenue growth of flat to positive 2%.
Mike Lapin: Austin and Nashville will continue to face elevated new supply in 2025, which should limit our pricing power for the third consecutive year.
Mike Lapin: On a relative basis, we expect Tampa and Orlando to be leaders among our sunbelt markets.
Mike Lapin: Yeah.
Mike Lapin: Moving on as shown on Slide 16, we expect 2025 same store expense growth of three 5% at the midpoint.
Mike Lapin: This is primarily driven by growth in real estate taxes personnel and administrative and marketing costs.
Mike Lapin: While only 5% of total expenses insurance expense growth of negative four 5% to negative six 5% reflects the benefit of the pricing we negotiated on a policy renewal in December and their deployment of targeted capex.
Mike Lapin: To conclude as summarized on slide 17.
Mike Lapin: We delivered strong fourth quarter and full year 2024 results same store revenue expense and NOI growth were all better than the midpoint of our guidance.
Mike Lapin: And same store NOI growth exceeded the high end of our range.
Mike Lapin: The near term operating environment presents some challenges, but we have successfully navigated through historically high levels of new supply and fundamentals suggest an attractive growth outlook with 2025 same store NOI growth expected to accelerate compared to our 2024 results.
Mike Lapin: We continue to innovate with the intention of increasing revenue growth improving resident retention and further expanding our operating margin over time.
Mike Lapin: I, thank our teams for their collaboration which drives innovation and superior results.
Mike Lapin: We are positioned to take advantage of external growth opportunities when appropriate we will continue to utilize various sources of capital, including existing joint ventures, and operating partnership unit deals to Accretively grow the company, while heating costs of capital signals.
Mike Lapin: And our unique approach to portfolio strategy operating excellence and continued innovation has created a company that has a full cycle investment and one that we believe maximizes value creation for our stakeholders, regardless of the economic environment.
Mike Lapin: Finally, I give special thanks to our teams in southern California for their efforts during the recent wildfires. The result, we had no damage to our properties.
Mike Lapin: And our teams across the country for their actions during the most recent polar vortex that brought brutally cold weather, even snow to southern states from Texas to Florida.
Mike Lapin: I'm proud of the preparations you took to ensure the safety of our residents and associates.
Mike Lapin: And the difference you have made to the cities communities and families affected by these events.
Mike Lapin: With that I will open it up for Q&A operator.
Mike Lapin: Thank you.
Speaker Change: I'll now be conducting a question and answer session.
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Speaker Change: North Carolina as many as possible to ask questions. We ask you. Please limit yourself to one question and one follow up.
Speaker Change: Thank you and our first question today is from the line of Nick <unk> with Scotiabank. Please proceed with your questions.
Speaker Change: Oh. Thanks, you know first question is just in terms of the guidance helpful. All the details on on markets and on same store revenue can you just give us a feel though in terms of blended rate growth you know how that could trend through the year for the different markets, particularly you know just think about sort of sunbelt versus the rest of the portfolio is there more.
Speaker Change: Have a kind of convergence on blended rent rent growth on the regions as you get into the back half of the year.
Speaker Change: Hey, Nick it's Mike I'll take that I think first and foremost maybe starting high level with total company just as it relates to that two 5% I think first of all it starts with our strategy. Obviously, you've heard US talk about this over the last six to nine months really driving or occupancy up during a period of time, where.
Speaker Change: Explorations are low and given the fact that we have historically low turnover that allowed us to drive occupancy to about 96 <unk> during the quarter happy to report today, it's closer to 97% to 97, two and so that's giving US a lot of tailwind to be able to drive our rents as we move forward.
Speaker Change: Think about that two 5% it's important to think about the cadence of it and so in the first half of the year our expectations as we continue to deal with elevated supply it's around 141.
Speaker Change: And then when we get into the back half of the year closer to about two points, 2% to three 2%. So again first half of the year call.
Speaker Change: Call. It one six at the midpoint that is right, where we landed for 2024 and the first half in the second half of the year that 3% its still about 70 to 90 basis points lower than the pre Covid average.
Speaker Change: So we do have seasonality built into that number we expect <unk> to be higher than <unk>, but again it is lower than those pre COVID-19 norms.
Speaker Change: Specific to the regions I think it's probably good to start on page 15, where we were able to go through just some of the expectations around the different regions.
Speaker Change: For us what we expect is obviously a higher earn in four places like the coast East.
Speaker Change: East coast being higher than the West Coast right now we think earn in is one three for the east about 80 bps for the West Coast and then we were negative one four the sunbelt specific to the blend low.
Speaker Change: Coast is looking very similar to what we achieved in 2024, our expectations are blamed there'll be roughly around 2.5% to 3% on the east it's going to be about a one to one two contribution to our total revenue in that region on west coast, probably closer to that plus or minus two 5%.
Speaker Change: <unk> this year and again that contribution is pretty close to one 1% as it relates to total revenue and then as you get into the sunbelt.
Speaker Change: Glenn This we're thinking probably closer to 60 to 90 basis points. This year and a relatively small contribution only around 30 or 40 bps. The differences where other income comes in and so for US we had about 8% growth in 2024 expectations are another year, where.
Speaker Change: We're expecting around 7%.
Speaker Change: And I'm seeing a lot more growth in places like the Sun belt. So similar to 2024 expectations are we could see anywhere from 10% to 12% growth in the sunbelt versus closer to call it 5% growth on the coast.
Speaker Change: Yeah. Thanks, Mike very very helpful. Second question is just on.
Speaker Change: Investments and you know I know Tom I think you said that the balance sheet set up pretty well for you to get you know to do decided to do more investments I guess you know the guidance is for you to be a net seller. This year. So how should we think about sort of you know where the focus is going to be on investments and is there actually some sort of capital built in.
Speaker Change: So the plan that you know if you're if you were to do acquisitions, you don't necessarily need to raise new capital and there could be some benefit if the acquisitions actually pick up thanks.
al: Hey, Nick this is al.
al: Maybe two things I'll pass along.
Speaker Change: Number one just on the best seller component.
Speaker Change: That's really a byproduct of a couple of sales that we have to see it up last year that happened to slip into early January. So those are really related to neutral funding for last year. So I wouldn't read too much into us looking like a net seller that's more of just about 24 issue and timing issue.
Speaker Change: As it relates to capital and deployment I think youre going to see us remain fairly opportunistic on that front.
Speaker Change: We've continued to advance discussions with our joint venture partner Lasalle and their capital source, which after being on the sidelines for kind of 12 months as they went through a global mandate review happy to report we had meetings with them earlier. This week and we are back in action and looking to deploy capital with that partner on the D. P. Front you know as we said in the prepared remarks previously.
Speaker Change: It's closed we think we've really kind of cleared the deck on that front from a risk perspective, and so now we're back into a normal course, but it's not something we had a couple of really good payoffs there in the fourth quarter as well as some expected payoffs. This year. So we're focused on redeploying capital on that front.
Speaker Change: Into the development side, we don't have much of a pipeline today, but as we continue to get more optimistic on where rent growth goes in 'twenty six 'twenty seven we do expect to see maybe two to three starts coming out of these development side. This year included one possible here in the quarter.
Speaker Change: And then you've got the redevelopment portfolio you know the redevelopment team continues to Harman continues to collaborate really well with the operations team also continued to invest on the redevelopment side and then I'd say lastly, while we haven't had anything announced recently the O P unit transactions, you've seen us do in the past, we do have a number of them.
Speaker Change: Discussions are ongoing on that front and so we'll continue to see what plays out on those but we are definitely looking to be active and opportunistic here with our capital allocation.
Joe Lapin: Alright, great. Thanks, Joe.
Speaker Change: Our next question is from the line of Eric Wolfe with Citi. Please proceed with your questions.
Eric Wolfe: Hi, Thanks, you mentioned that where concessions trend in your markets will be a key factor in achieving your outlook. So could you just talk about where concessions are today and sort of where you think they might go is as we progressed through the year.
Eric Wolfe: Yeah, Eric I'll tell you first it goes back to.
Eric Wolfe: Finishing up on a strong note so coming off a very strong <unk> positioned us obviously with high occupancy and our turnover continues to trend down and so right now what we're seeing in January further momentum again occupancy above 97% today turnover in January was down another 500.
Eric Wolfe: Depth on a year over year basis, and our rents and other income are tracking with our expectations for the first half of the year and so we are getting more active as we try to drive our market rents up and are driving our concessions down we're right around a week in January and we're starting to push that down to sub one week as we move.
Eric Wolfe: Further into the first quarter, so concessions are coming down a little bit right now and again I think that's part of our strategy to drive occupancy and now put our focus on driving our runs out.
Eric Wolfe: That's helpful and then I guess as far as the new CIO role could you maybe just talk about the rationale for the change there from from CFO and then Joe if there's anything that you're expecting to do differently in this role with the companies.
Eric Wolfe: Our capital allocation strategy is going to change at all or if it's more about processes, just anything that's going to be different now versus before.
Eric I think I'm always striving in the room is striving to get better and sort of like to start off with first in my prepared remarks, congratulations to Mike and Joe for promotions and assuming additional responsibility. This part of my role and the board as well as an.
Eric Wolfe: <unk> team is to push ourselves to get better and deeper talented bench and I think this opens up opportunities under oath of them to advance people's careers and their skills and ability to generate shareholder value.
Eric Wolfe: And with respect to the CFO, Joe has been an exceptional CFO for the company for eight years.
Eric Wolfe: I don't want to say you get stale and the job that you become the op.
Eric Wolfe: A key part.
Eric Wolfe: Our success.
Eric Wolfe: But I'm looking to say gosh, how can we get better as a team and it opens up a slot and then I think with Harry retiring and Joe stepping into the CIO working with Andrew and the team there.
Eric Wolfe: He brings a fresh perspective.
Eric Wolfe: I would expect us to continue to have a lot of success in the investment area and rollout commenced a search for a CFO I think it's a very attractive position in a very stable capable company and a team member for our future.
Eric Wolfe: So that's how I've been thinking about it and the group has been always along in this conversation about how do we get better as a group how do we get better as a company.
Eric Wolfe: I think it prepares us that way and again growing talent is a critical element of our long term success.
Thank you.
Speaker Change: Our next questions come from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.
Great. Thanks for taking the question Mike I was hoping you could walk through the line of sight on other income a little bit same store revenue growth contribution year over year from that bucket in the guidance I'm just trying to figure out. If this number slowly goes down as Wifi rollouts moves through the system or.
Speaker Change: Or if this could stay even or reaccelerate in the out years.
Speaker Change: Okay.
Speaker Change: Sure I appreciate the question, Jamie I would say first and foremost just as it relates to other income we have a culture and history of driving incremental growth.
Speaker Change: In fact, we've been at this for more than 10 years, where we're not only increasing our other income every year, but also driving those margins. So as we look at it we've got about $60 million in Max potential NOI to choose from right now through a whole list of different initiatives.
Speaker Change: Looking at them, we're prioritizing now and we're trying to assess which ones. We can pull the lever on and I'm happy to report again last year, we had 8% growth in other income.
Speaker Change: To be another strong year this year.
Speaker Change: So for us when I look at it we've got about 11, 5% of our revenue that comes from other income it's approximately $180 million on our $1 5 billion and same store revenue.
Speaker Change: And it looks pretty promising when I look at it.
The Wi Fi rollout.
Speaker Change: Packaging lockers.
One of the areas things like that that are really driving a lot of this line item.
Speaker Change: We look at it about 60% of that 7% growth in 2025 is already baked and when I say that we've done a lot of the heavy lifting with Wi Fi rollout, we still have about 10 to 12000 units for installing throughout this year, but a lot of that income is coming from all the work that we've done over the last 12 to 18 months. So.
Speaker Change: We feel pretty good about our other income line item.
Speaker Change: Hey, Jamie maybe just to add on to that too because we do focus a lot on other income as a company and obviously within the Investor says.
Speaker Change: But you've heard us talk somewhat ad-nauseum on customer experience in the past and you are seeing the results of that of course with turnover coming down down both absolute and relative but that initiative is across all line items. So as we continue to do better and better on customer experience keep driving down that turnover, it's gonna enhanced pricing power enhance other inc.
Speaker Change: Enhance occupancy drive down turnover costs, both capitalized and Expensed and so I do think you'll continue to see a benefit there as we've really leaned into that initiative, which may not show up in other income necessarily but will show up throughout the enterprise. So just be cognizant of that.
Speaker Change: Okay. That's very helpful. But do you think as we look ahead. The next few years like at some point does it become a headwind to the growth rate.
Speaker Change: And there's enough juice still that you can keep it going for a while in terms of your growth rate.
Speaker Change: This is to me I think like a lot of things in life its a flywheel.
Speaker Change: And cut.
Speaker Change: Customer experience projects going to spun off many more new ideas.
Other income aspects of our relationship with our customer because they're going to be with us for a longer period of time. So you know I think it's premature to kind of highlight some of those why because they are in early stages of experimenting and finding out what customers respond to and don't but it is the cornerstone.
Speaker Change: <unk> of how we can build out a deeper pipeline if those opportunities in the future to backfill it.
Speaker Change: Clearly I'm with you if you don't keep innovating.
Speaker Change: You run up against your own success.
Speaker Change: Take the case here is continue to innovate and use data use that aspect of it to convert to cash flow. If you will and we'll find out where that margin keeps growing if you will but that's in essence the longer view of that customer experience project.
Speaker Change: Okay. Thanks for that and then as we I'm looking at slide nine from the presentation, where you talk about 25 suppliers understand of existing stock.
Speaker Change: I know, you've got the red Green and yellow bucket.
Speaker Change: We're coming off of historic levels of supply and allow and thinking about those red hat red bucket, but like what's the number here, where you actually worry about supply weighing on fundamentals going forward.
Speaker Change: I think there's some of these yellow market's going to move into the red bucket or 50 to 150 basis points and 25 is just not something to worry about and we really think youre kind of cleaning things up here and every market as we work through 'twenty five.
Speaker Change: Yeah.
Speaker Change: Jamie were definitely cleaning things up if you will as we go throughout 'twenty five.
Speaker Change: Look from the Green bucket to the Red bucket, you do have pretty meaningful deltas.
Speaker Change: Trade growth plus or minus upwards of 500 basis points, depending on which market you're comparing it to the yellows are in the middle of it.
Speaker Change: As you migrate throughout the year like I started there kind of alluded to this earlier, which we show it back when we gave the original revenue performance you're going to see some of these markets start to compress upwards relative to the east and West coast markets and so our sunbelt supply comes down pretty meaningfully while it's still at a high absolute level it is going to come.
That pretty meaningfully from where we were at 24, which we do think enhances pricing power throughout this year that as you go into 'twenty six but part of the reason that the eastern West Coast don't see that same decline and supply is really just longer lead times for developments. There are more embedded high rise product being delivered which has a little bit longer development cycle.
Speaker Change: As you get into 'twenty six.
Speaker Change: Supply of raw Frac them off another 30 plus percent that's going to be across the board in all three of those regions. So we'll gradually see fewer and fewer market sitting on the red and yellow.
Speaker Change: Great.
Speaker Change: Okay, Great. That's very helpful. Thank you.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Steve Sochua with Evercore ISI. Please proceed with your question.
Steve Sochua: Yeah. Thanks, Joe I know you were at it and then they see them and I'm just curious what the discussion was like broadly around development. You know everybody's painting. This picture of 25 still you know a little bit of a transition year high supply, but 26 27 and beyond looks great. So I'm, just curious kind of the discussions around.
Speaker Change: New development and even it sounds like you.
Speaker Change: You guys might want to start some new developments. So you know what's the I guess the risk that everybody has seen the same picture and goes to look put shovels in the ground sooner than later.
Speaker Change: Yeah, Yeah, Great question I do think everybody is generally speaking seeing that same view of that.
Speaker Change: Here are the future as you get into the 26 27, and you look at some of the slides that we put on here.
Speaker Change: And prior to that in terms of supply deliveries, you're definitely going to see less supply with the backdrop of a very strong relative affordability and hopefully still good demand and so there is an expectation of outsize growth in those years, which obviously gets developers are excited.
Speaker Change: I think the ability to translate excitement and a thesis on the future.
Speaker Change: Actual shovels in the ground is a little bit more challenging we have seen construction financing and start to come back a little bit from the banks. So they are improving in terms of the availability of that capital you know the spreads are still relatively high and kind of plus or minus 300 basis point range.
Speaker Change: The bigger challenge still seems to be the L. P equity and so can you go out there and raise capital to deploy into the development to get those starts to them today.
Speaker Change: If you have the thesis, yes, I think a lot of us believing it do you have the capital not so much so not overly concerned about your point on do we see a big surge in supply and to the extent that we do I think that's more of a 28 S. You would still have a pretty good runway here for a couple of years.
Speaker Change: In terms of how it relates to ours, I mentioned kind of two or three it starts potentially teed up here for this year.
Speaker Change: When you look at the yields that we're going to have on those on a current underwritten basis.
Speaker Change: We're looking for a high fives to 6% on.
Speaker Change: On that capital so feel comfortable with those projects are moving forward with those.
Steve Sochua: Steve to me a rated knockout alert.
Steve Sochua: If I can you you've been through a lot of these cycles and you know where we're at today all the developers are trying to keep their shops busy and penciling a lot of deals. The truth is capital is looking over their insane why am I to building if I can buy below replacement cost.
Steve Sochua: So the acquisition market sale market is probably going to heat up a little bit more than 25 26 before the development starts to rewind itself up well.
Steve Sochua: Gotta go where there hasn't been any development, where there's rent growth. So that we step back and look at it and say, it's a window where be prudent.
Steve Sochua: But we think there is and it's a very competitive window for acquisitions right now.
Steve Sochua: So get out there and see what we can find.
Steve Sochua: Great. Thanks for the color maybe just quickly on slide 16, maybe for Mike just as you look at the expectations for expense growth in.
Steve Sochua: 25, and you know there are some big deltas from where 24 came in you know I'm just looking at like personnel costs are.
Steve Sochua: Elevated number in 'twenty, four coming down much more than 25, but real estate taxes kind of gone. The other way just you know where do you see the risks on your slide in and you know how do you sort of thought about that in the budget.
Yeah got it Steve I'd say first of all thinking about 'twenty four 'twenty five and specific to personnel just as a reminder, we had he cares a refund that we had to deal with last year.
Steve Sochua: Our personnel expense was up about 11% and that's mainly because of the anniversary off of that now we're back to kind of a normal run rate. If you will and so when we look at our expenses.
Steve Sochua: We would've been around call. It three 5% this year, if we didn't deal with that anniversary.
Steve Sochua: Things feel pretty good the team's been doing a lot around all of the different initiatives, we talked a lot about other income, but they've made a lot of progress in things like efficiencies in how we're utilizing technology to try to drive drive down some of those costs and we're also doing things with our vendors trying to consolidate that.
Steve Sochua: That that's playing out in some of these numbers that you see here today and so for us.
Steve Sochua: It feels good going into 'twenty five we ended on a good note in 'twenty, four and we're off and running in 'twenty five.
Steve Sochua: And maybe just taxes real quick anything there that speak about.
Steve Sochua: As to the real estate tax side, we did have some wins in terms of appeals activities that took place in 'twenty four so it's taken a little bit higher up in the mid threes, obviously, we're going to be going after a lot of those same types of appeals, especially profits out in California, So we'd hope to appeal down that initial.
Steve Sochua: Number of 3.5% no when you look regionally and by markets to be honest most of them are plus or minus in that range I think the only outlier is really tied.
Steve Sochua: Up in Seattle, we're seeing values come down and so actually we're forecasting negative multiyear real estate.
Steve Sochua: Extra up there in Seattle.
Steve Sochua: Our lives to the other side you know, we're seeing rates come in higher in Boston.
Steve Sochua: More times.
Steve Sochua: And then out in Nashville also have the.
Steve Sochua: Four year.
Steve Sochua: Reset it takes place a little bit more pressure in Nashville, but most of our markets right. Now we're thinking are within that two and a half to four times range.
Steve Sochua: Great. Thanks, that's it for me.
Speaker Change: The next questions come from the line of Jeff Spector with Bank of America. Please proceed with your question.
Steve Sochua: Great. Thank you.
Speaker Change: Joe at the at the top of the call you you in your opening remarks talked about lower supply of benefiting I think you said late 25. Please confirm if that's correct or not I guess my question really is on the confidence level here.
Speaker Change: How does that tie to let's say guidance very upper end versus lower end versus mid point. Thank you.
Speaker Change: Yeah, Yeah, we do expect to see supply continue to trickle down and throughout the year in terms of the deliveries and on page eight we have a demonstrated for our markets would you see it does trend down.
Speaker Change: That really plays into Mike's commentary earlier on blends and so our first half blend assumption being roughly in line with what we saw first half of 'twenty four and then we start to see that blended number lift as we go into the second half kind of peak out in <unk>, and then see some seasonality going into <unk> with a declining a little bit now that is.
Speaker Change: Driven across the board, but we did talk about seeing some belt start to accelerate a little bit more as we move throughout the year as they do see a more significant decline in those deliveries and so I think a couple of things that give us a little bit of comfort with that in terms of the higher second half versus first half. We mentioned just now the decline in delivery activity, which should help.
Speaker Change: The other pieces are relative affordability continues to be strong and obviously the demand environment continues to be strong. So lifting that second half blended lease rate growth assumption up into the threes, which is still well below what we were at pre COVID-19 and we're kind of getting into more of a pre COVID-19 norm when they get into the back half of the year and definitely going into 'twenty six.
Speaker Change: That gives us the comfort on the guidance piece.
Speaker Change: I do think the other thing just want to mention too Jeff as we kind of think about this if you go to page 14 within the presentation I'll guess trend just a second there to get it ready for the webcast but.
Speaker Change: Page 14, when you look at these assumptions between earn in blended lease rate growth innovation, and then occupancy and bad debt.
Speaker Change: In totality, we get to that 2.25% revenue number which is basically the exact same as what we put up in 2024 and so we got some questions overnight on the 2.5% blended lease rate growth, which we're talking about right now that's because it is more back half weighted you.
Speaker Change: You can see there only a 90 basis point contribution coming off of blended lease rate growth typically if youre in a normal seasonality curve you'd have a mid year convention that two and a half would translate to 1.25. So it really tells you that the revenue contribution is pretty.
Speaker Change: Typical with what we saw in 2024, so we haven't assumed a lot of acceleration in that Rev contribution and the blends if they don't come to fruition in the back half or more of a 'twenty six earn an issue instead of a 2025 guidance or revenue growth issue as most of the assumptions look pretty spot on with what we delivered in 2024.
Speaker Change: Okay. Thank you and then turning to the Tech initiatives. I know you guys are always scouring for new I'm, just curious, whether it's AI driven or just new technology or applications are you seeing is there anything exciting on the horizon here that you're looking into.
Speaker Change: Yeah, a couple of things I'd say, maybe some people saw that we recently just transition and we're gonna be implementing finalize our CRM. This year. So we're really excited about that.
Speaker Change: Okay.
Speaker Change: Something that's gonna help our invention definitely not.
Speaker Change: Drive up and ultimately.
Speaker Change: Allow us to be more effective more efficient centralized team as well.
Speaker Change: Hum.
Speaker Change: This focus on new ideas and not necessarily get bogged down on a lot of them are back off so that's going to be happening over the next three to six months. We're very excited about that rollout. In addition, some of the other AI based initiatives things that we're using with technology. It goes back to what we talked about last year just as it relates.
Speaker Change: As to who is coming through the front door, who are allowing to be a resident with us and making sure. We're identifying bad actors if you will before they ever enter the door, so things like IV verification.
Speaker Change: Proof of income just making sure that we're capturing that that's playing out.
Speaker Change: If you recall, we rolled that out mid last year, we saw our occupancy come down a little bit as we started to roll. It out we feel like we've got our hands around it and it's really starting to pay dividends today, and just to kind of size and given that some of our more riskier residents. If you will that comes through the door. Our average deposits are up.
Speaker Change: 20% at this point are co signers are up one or 2% and our credit scores are actually up about 20 points closer to 730 710.
Speaker Change: We think that this is going to continue to try to drive our revenue and make sure that we have good residents as we move forward.
Speaker Change: Jeff This is Tony again, if I can add just a little bit more I think the key here is is that we own our data.
Speaker Change: So the amount of data might could tell me how much we're accumulating every day on every customer interaction from prospect all the way to move out builds an enormous warehouse. If you will of facts to main trends to look for.
Speaker Change: Responses that were missed and so it's not just winding the business model better it's looking.
Speaker Change: Around the corner owning that data.
Speaker Change: <unk>, we can run the business to anticipate the customers position our market position and then ultimately how we're pricing our product to those individual customers. So I think it's just the very early stages I think the focus that Mike and the entire team has on it it's always amazing every Monday.
Speaker Change: We sit and go through where we stand and how much facts, we know about where we are and where we're going help us run the business better.
Speaker Change: Faster more efficiently.
Speaker Change: Okay.
Speaker Change: Great. Thank you.
Speaker Change: Our next questions come from the line of Austin Wonder Schmidt with Keybanc capital markets. Please proceed with your question.
Speaker Change: Great. Thanks, Mike I appreciate all the detail you gave across regions, but the question on the same store revenue guidance, which you know.
Speaker Change: It assumes some acceleration in the Sun belt markets for a lot of the reason decided first half versus back half, but you do have deceleration.
Speaker Change: For the coastal markets, despite having a higher earn in so I guess, what's driving that assume deceleration in the coastal regions. This year and could you actually see some upside given some of the positive dynamics being discussed you know on the west coast in particular.
Yeah.
Speaker Change: Yeah, that's a really good question Austin.
Speaker Change: It's important to point out when you look at the coast.
Speaker Change: Specific to the West Coast Arc lands in our earnings are very close to what we experienced last year and so not not really seeing a whole lot of deceleration from that standpoint. The difference is going to come in the other income in a place like the west coast and in.
Speaker Change: The main reason is a place like Monterey Peninsula for US we are now dealing with.
Speaker Change: Rent control on that front as well as we're not able to charge for a reimbursement. If we don't have some meters at those assets. So that's actually about $2 million to $3 million drag for us in 'twenty five and so if we didn't have that dragging down the west coast, we'd have about 50 basis points more in growth and so our coast wood.
Speaker Change: It actually looks very similar to 2024.
Speaker Change: And then specific to the sunbelt it really comes back down to the other income growth again, which again, we had posted a 14% growth in 2024 expectations are that we're gonna have around.
Speaker Change: At 12% this year.
Speaker Change: And then as far as the just to put.
Speaker Change: Put a ribbon around selling is nonrecurring and thought we do have a plan to try to get back in there get the sub meters going and so we can start to recapture a lot of that income we're gonna, losing 25, and that's probably more of a 26 and 27 initiative.
Speaker Change: That's really helpful. And then just switching gears kind of high level, maybe Tom or Joe I'm, just kind of interested in your view about the potential privatization of Fannie Mae Freddie and and just the impact you think it could have on broader housing market.
Speaker Change: Action market and obviously multifamily.
Tom Toomey: Yeah. This is toomey I I'm not sure anybody's going to make a very long living predicting what's coming out of Washington. These days.
Speaker Change: And so I will just pass and let the cards fall where they go.
Speaker Change: They seem to have a lot of other things that they're working on before they get to the <unk> in that aspect. It is a very high functioning group. It stabilizes the market I don't think anyone wants to see any of that disappear and so then in whose hands.
Speaker Change: And how it's run I'll leave it to the.
Speaker Change: People that have a say over that to speculate and deal with.
Speaker Change: That's fair thanks for the time.
Speaker Change: Yeah.
Speaker Change: Our next question is from the line of Michael Goldsmith with UBS. Please proceed with your questions.
Michael Goldsmith: Good afternoon. Thanks for taking my question, how much occupancy are you willing to sacrifice to push rate.
Speaker Change: And how much room do you need to see during that peak seats into it.
Michael Goldsmith: That range.
Michael Goldsmith: Sure I think that side. So I think first of all the way to think about how that's been ramping.
Michael Goldsmith: It comes off.
Michael Goldsmith: 1% of rent loss approximately $26 per home.
Michael Goldsmith: To about $7 million.
Michael Goldsmith: The thing about occupancy 1% of occupancy by 550 homes at $2600, that's about $17 million in a given year. So the way we think about it is if we lower occupancy by say 30 to 40 basis point, we would need a 100 basis points and rent just to break.
Michael Goldsmith: Even in a given year.
Michael Goldsmith: I don't know if you can capture that in the shoulder quarters, where you have low demand and so you've seen it with our strategy and as demand starts to pick up.
Michael Goldsmith: The letter occupancy migrate down and we're willing to take that back to see if we can't capture another call it 1% or more on rent.
Again during the shoulder quarters, we think it's a prudent strategy to try to drive that occupancy up and prepare for that period of time, where you can really start to drive the rents.
Michael Goldsmith: I do think it's critical to Michael as you think about your comment or question about how much are we willing to sacrifice part of that occupancy strategy as occupancy versus rate, but I don't want it to get lost on the group in terms of customer experience and a decreased turnover component I think Mike referenced earlier the continued to decrease since January.
Michael Goldsmith: That's part of the surge in that occupancy so it's not necessarily the occupancy rate trade all the time, sometimes it's good customer service that just results in better occupancy and residents wanted to stay longer. So there's two components to it as you think through it.
Speaker Change: No. That's helpful context, and my second question is you know we've discussed the trajectory a blended rent trend, but maybe it looks like same store revenue growth.
Speaker Change: Is there any lumpiness in or is there any effect on the lumpiness of that through the year due to some credit kind of cause either positive or negative.
Speaker Change: No I mean for us when we look at the cadence of growth throughout the year expectations or the first half of the year and a little bit lower in the back half maybe call. It two to two and a half and then the back half, we're probably closer to that two and a half maybe reaching upwards of the trees, but not all.
Speaker Change: A lot of Lumpiness, it's pretty consistent.
Speaker Change: Got it thank you very much.
Speaker Change: Next question.
Speaker Change: It's from the line of Brad Heffern with RBC capital markets. Please proceed with your questions.
Speaker Change: Hey, Brad you might be on mute.
Speaker Change: Thanks and did.
Speaker Change: You mentioned a number of uncertainties in the slides all of those are regulatory or political in some way. It seems like you don't want to predict those Mount blame you for that but I'm curious if you've risked those items in our guidance at all on how much specifically with regard to dos and immigration.
Speaker Change: We have not made it it's why there is a range around our base case.
Speaker Change: Uncertainties could be both positive and negative in all of these.
Speaker Change: As you think about regulatory risk yeah, there's the state and local regulatory risks that we talk about a lot with things like rent control, but fees deposit seconds of that nature, but there's also less regulation that we think we may see at the federal level.
Speaker Change: Both from a legislative and legal perspective, but also just in terms of small business formation medium size business formation, which is really the driver of job growth across the country with over 50% of employment coming from the small business side. So I think if we see what happened in the first administration, where you could cut some of that red tape that actually could be a positive uncertainty and all.
With us I think the same thing could be said about those are on a federal perspective, yeah. The question remains as to where they concentrate and potentially some of their <unk>.
Speaker Change: Cuts or entitlements or pork or anything of that nature. It may impact different markets differently, but on a federal level it could actually be a positive including for the interest rate environment. So we put a range around us.
Speaker Change: To try to factor that in but it's hard to say they are all negatives are all positives.
Speaker Change: Okay got it thanks for that and then a question on the customer experience project, obviously, everybody has been seeing record low turnover. So I'm curious, how you're separating out the benefits specifically as that program versus just how the broader market is acting and then what sort of gives us the confidence that you can move turnover, even lower from record levels.
Speaker Change: Alrighty.
Speaker Change: Right Yeah.
Speaker Change: We look at that from both an absolute and relative basis and so what I would tell you is going back to <unk> of 23 on an absolute basis, we're down about three 5%.
Speaker Change: On a relative basis over that same period of time, we've improved by about 200 basis points against our peer average so we watch it again.
Speaker Change: Now not just in the fact that everybody turnover down and I'll tell you why we felt.
Speaker Change: And because we do have a ton of data Tom talked about it a little bit previously, but it's upwards of 898 elements at this point ready a million a day and so we have the team in place we have the dashboards Bill.
Speaker Change: And we have dedicated resources that are watching everyday creating touch points with our residents and we see it playing out and again I saw play out again in January expectations are that February is going to be another month, that's down on a year over year basis.
Speaker Change: And this isn't even factoring in all of the stuff that we have planned for this year and I'll tell you what I'm. Most excited about is the fact that we're able to spend a little bit more on NOI enhancing capex to try to drive problems down that we know are an issue at these sites that we do think we'll be able to do that.
Speaker Change: And then also the rollout of bundle I spoke to a little bit with our CRM. We think that's going to pay a lot of dividend throughout the year. So there's a lot more to come on this front, we're still continuing to learn.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Next question is from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your questions.
Speaker Change: Hey, I think its still good morning out there too.
Speaker Change: Two questions first on the other income you guys have certainly been on the forefront of growing different you know entities. The the you know the different services that you offer for your residents, but at the same time you know, we still talk about earnings growth and revenue growth based on supply demand and the general apartment sector.
Speaker Change: So do you feel that these efforts are truly accelerating overall earnings growth or is it sort of a pie mix, where you can either push rent or push these other fees, but you know the tenant the residents still looks at at the hole at the whole answer a lotta together, they don't say Oh, I can stomach a rent increase and then.
Speaker Change: I can stomach these incremental fees.
Speaker Change: Yeah.
Speaker Change: That's a constant source of discussion internally as we think about effectively where you're going is the cannibalization concept of if youre going to pay. Moreover, in one bucket are you willing to pay as much in the other bucket and we have done a bunch of past work and studies on that to ensure we are capturing what we believe is the total amount of other income that we should receive.
Speaker Change: While not cannibalizing the rent component now I think one of the things that we do that's very helpful for the resident and gets US kudos from the resident is all land pricing upfront on our website, where you can go in and select your unit you can pick what amenities or what other income items youre going to have you can see what your utility bill will typically be and so right.
Speaker Change: Up front, we're being very transparent, which is a rarity within the industry.
Speaker Change: Residents I appreciate that because they know now the total check they're coming in with their not surprised when they get through their first month of residents and then when you come to a renewal.
Speaker Change: And the other one.
I think we've tried to address it by being transparent with the Watson and then also doing our own checks to make sure we don't cannibalize friends.
Speaker Change: Okay, and then just add one thing.
Speaker Change: And let's just quickly. These are also win win for us and our residents and so when we think about this like Wi Fi as an example, we are very competitive with our pricing. We're trying to provide a benefit that helps them out it helps us out it gives them access to Wi Fi across the property and quite frankly, it helps with our self guided too.
Speaker Change: Our process. So there is that I mean things like reserve parking we're trying to identify sponsor they're actually better for a resident that make it more efficient for them. So a lot of these things we keep in mind, how will benefit them as well as us.
Speaker Change: Okay. The second question is on the on the debt and preferred equity business.
Speaker Change: Obviously, you can appreciate Philly probably wasn't fun, but as you guys look at new investments are there any changes to underwriting or or geographies that you would no longer look at or was that was the fairly sort of an isolated one and these other two watch list or you know I'm, just trying to see where there any learnings from these that going forward.
Speaker Change: Would change or this is just part of the business and it's why the yields are the way the yields are.
Speaker Change: That's a great question and I think wasn't fund is a very fair terminology to utilize and working through that but.
Speaker Change: No I think we have made changes when you look at the structure of the book look at the components of how much is on development versus operating assets now.
Speaker Change: So we've continued to ramp up the amount that we have within the operating kind of recap side of the portfolio and I think we're up to 30 plus percent of the deals now have a current cash pay component.
Speaker Change: So we are pivoting a little bit in terms of the book of business and then you get into the lessons learned component.
Speaker Change: I do think there are quite a few that we've had over time I mean, you know.
Speaker Change: From a lower loan to cost perspective, I think when we look at development deals going forward. We are definitely committed to ensuring that we are at a lower loan to cost than perhaps we were factoring in the COVID-19 years, ensuring time constraints to make sure we don't get as drawn out because when they get drawn out while we continue to group earnings.
Speaker Change: Ultimately it may put them.
Speaker Change: Equity partners back against the wall a little bit.
More utilization of our market research and analytics team a number of these but if that challenges are really driven by supply to some degree and so we find high supply concentrations are definitely negatively impacted rent and NOI growth profiles, and therefore ability to recap these investments.
Speaker Change: And then I think just.
Speaker Change: The scenario analysis, you know, we did not underwrite back during the Covid years of when we were kind of forecast or sub four cap that youre going to see a run up embracing borrowing cost under its 200 basis points, an increase in cap rates to that degree or.
Speaker Change: Our scenario analyses to work through and ensure that in various scenarios.
Speaker Change: We do receive the paybacks, so theres a number of lessons learned in our approaches to the structure of the book of business as well.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of John Kim with BMO Capital markets. Please proceed with your question.
Speaker Change: Thank you just going back to other income of 65 basis point.
Speaker Change: In addition to things in revenue.
Speaker Change: Actually it seems a little bit light because it implies $10 million in revenue last year, you were aimed for $10 million NOI, you're suggesting another $60 million that you're expecting going forward.
Speaker Change: Can you just comment on that and also remind us what your typical margins are on the other income.
Speaker Change: Yeah. The margins vary by initiative I can tell you for something like the Wi Fi, we charged around $70 on average and it cost us around $20 on average so that's a pretty strong margin and things like parking obviously it doesn't cost us anything.
Speaker Change: To try to drive up more.
Reserved parking so a huge margin there and then things like short term furnished rentals we.
Speaker Change: We do have a lower margin on that book of business and we've been actively bringing that down over the last couple of years, just trying to make sure that we're.
Speaker Change: We're achieving our highest cash flow, we can so they're all a little bit different but for US again, the 8% growth last year was very strong.
Speaker Change: And basically to repeat that we feel pretty good about it.
Speaker Change: Oh.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: That number I referenced earlier in two initiatives that we can pick and choose from and trying to drive a higher throughout the year, which last year, we had a lower bar we ended up exceeding it I hope you're right I hope we can do that again in 2025, plus based on everything we see today we.
Speaker Change: We feel like that 7% is a pretty pretty good number.
Speaker Change: Yep, Okay, and then Mike you mentioned a.
Speaker Change: Rent control in Monterey Peninsula, which is little disconcerting, because Vincent really haven't gone up that much but can you comment on whether or not there's the vacancy decontrol components to the new measure.
Speaker Change: And are you concerned or are you hearing rumblings of a similar rent control measures in other markets.
Chris: Yeah, Hey, John This is Chris.
Chris: Looking at it a little bit further, but it does have to abide by Costa Hawkins. So there is no I don't believe that there's a vacancy decontrol measure.
Chris: Okay.
Chris: And any commentary on other markets.
Chris: You know the biggest thing we're looking at this year, there's commentary out of Washington State a couple of bills at the state level.
Chris: Obviously, we're looking at if there's any emergency legislation in California, especially at the state level as.
Chris: As far as rent freezes et cetera, those are kind of the two big focal point and so I would say right now.
Chris: Great. Thank you.
Speaker Change: Our next questions are from the line of Julian plan with Goldman Sachs. Please proceed with your question.
Speaker Change: Hi, Thank you for taking my question I might've missed it but can you give us a sense of January blends and new lease rate growth by region.
Speaker Change: And also one of your Sun belt peers was noting that pricing trends in January felt better than normal seasonality. I guess are you are you seeing that in your own portfolio.
Speaker Change: Hey, Julien you Didnt Miss it we didn't give necessarily the exact numbers, but what I would tell you again as occupancy is higher than we expected to end of the year turnover is lower than we expected and we're right on track when we look at our initiatives related to other income as well as our Blaine. So we feel pretty good about January.
Speaker Change: Right now and quite frankly, we're in February now feels pretty good.
Speaker Change: Okay got it. Thank you and then maybe a second one I mean, when you look at some of the really strong sunbelt absorption numbers that continue to come through in the fourth quarter on the face of it it may be seen even better than I would expect from current levels of job growth or.
Speaker Change: <unk> trends in those markets do you feel that that speaks to the pent up demand.
Speaker Change: In those markets from from several several years of outsized migration and job growth and at some point do we have to start worrying about maybe these high levels of absorption starting to deplete that pent up demand.
Speaker Change: Okay.
Julien: Hey, Julien.
Julien: It's kind of three different factors.
Julien: The first is we've talked a lot about the relative affordability component. So the total household formation activity this year.
Julien: It hasn't been materially different than what we've seen in the past, but given the lack of new housing being built and then the lack of existing homes being sold.
Julien: In more household formations pivot over towards the retro ship side, which we've talked about in the past when you got into the mid 20 tonnes, we kind of saw that renter ship society take place given the relative affordability. So that feels like a multiyear trend mainly because we don't expect home prices to come down and rates need to come down.
Julien: The 200 basis points, just to get back to a pre COVID-19 level in terms of affordability. So it's a little bit of that and they get you are hearing rumors of individuals' coming off the couches and so getting out of their parents' basements. So when you look at younger age cohorts, you're seeing a little bit of that which there's been.
Julien: Pretty high level of younger age cohorts living at home and so you're starting to hear a little bit of that.
Julien: Built up their savings or got into their income producing years, and then lastly, as you see more and more returned to work and return to office that does bring people back in and get them off the couch is at home as well and so there's a couple of different trends that.
Julien: Providing a tailwind during the phase of record supply you know as we talked about what kind of go on more normal supply here as we move into 'twenty five and then decrease in 'twenty six and so I think those trends generally probably remain in place.
Julien: Just be what happens on the demand front from a jobs perspective.
Julien: Got it that's really helpful. Thank you.
Julien: Yeah.
Our next questions are from the line of Alex Kim with Zelman and Associates. Please proceed with your questions.
Alex Kim: Hey, guys first off congratulations to Mike and Joe for any rules at the firm and thanks for taking my question I wanted to ask about your strategy for potential acquisitions. This year theres definitely more optimism for unlock seller supply.
Speaker Change: They see last week and is there any upside to that acquisition volume from what Youre hearing and.
Speaker Change: Any any particular markets that might be focus at the moment.
Joe Lapin: Alex its Joe.
Joe Lapin: He was a lot of optimism and I might say in terms of not just the go forward fundamental picture, but a lot of capital out there looking for transactions on the multifamily side, obviously continues to be one of our favorite asset classes out there I think.
Joe Lapin: One of the challenges however is that the sellers see that same dynamic and so unless you're a forced seller do too.
Joe Lapin: Duration of funding coming up on the end of our funds you have a capital event such as the refinancing that you don't think you're getting rid of them.
Joe Lapin: You're just not seeing that many assets come to market. So the bullishness on the buyer side, it's kind of met with bullishness on the seller side and so that is keeping transaction volumes down.
Joe Lapin: Where we're focused is obviously with our joint venture partner at Lasalle and trying to effectuate a couple deals there with them. Yeah. We're talking about a couple of different target markets were still winding on making sure. We work through so not prepared to talk about that right now, but it's gonna be typically that are 20 to 30 year old product at a maximum.
Joe Lapin: Have a nice value add component that we can hand off to either our operational team and or our redevelopment team to try to get a lift in NOI.
Joe Lapin: On balance.
Joe Lapin: On sheet transactions.
Joe Lapin: We will continue to look at those as well as continue to look at disposition activity and see if maybe we can yeah.
Joe Lapin: Enhance the cash flow growth profile of the company over time.
Speaker Change: Got it makes sense.
Speaker Change: And I know you touched on it earlier, but just on your recent partnership with funnel.
Speaker Change: Are there any additional details you can provide about the partnership and maybe more specifically its effect on NOI or how it fits into the context of the technology and innovation initiatives you've been rolling out.
Speaker Change: Okay.
Speaker Change: I'll take that I think for us.
Speaker Change: Specific to the rollout of it.
Speaker Change: It's really going to help allow us to drive the customer experience project, even further and again.
Speaker Change: It is not the end all be all with how we think about innovation, that's going to allow us to really spend more time on all of these other ideas and all of the data that we have on the customer experience. How we can leverage that because we're not gonna have to deal with a lot of the back office piece of that we were doing well because quite frankly funnel wasn't around when we started.
Speaker Change: Our own CRM, probably three years ago, and so we think.
Speaker Change: That for quite a long time this is going to allow us to leverage a group that's done a really good job of that and I'd say in addition to that we have big plans around our online leasing process.
Speaker Change: I'll move in process and something we call Omni channel just a more seamless streamlined approach to how we communicate with prospects and residents. So theres a lot of benefits that are going to come up with and we're just now scratching the surface, we're going to learn a lot over the next three to six months.
Speaker Change: Understood. Thanks for the commentary.
Speaker Change: Our next question is from the line of Handel St Juste with Mizuho Securities. Please proceed with your questions.
Speaker Change: Hey, guys. Thanks for hanging in there two quick ones for me first a follow up on development I guess I'm curious.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yep, we can hear your first question is on the development I'm curious how you guys are a factor.
Speaker Change: Okay.
Speaker Change: And we lost you again.
Speaker Change: Alright, one last time.
Speaker Change: Alright.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: I'll jump back in the field and overall.
Speaker Change: Yes. Thank you. Our next question is from Linda Tsai with Jefferies.
Linda Tsai: Thanks for taking my questions. Just one you said turnover would be 100 bps lowered this year sounds like it's mostly from operational improvements are there certain markets, where you'd see larger opportunities to reduce turnover.
Linda Tsai: Good question I'd say again, we put 100 fits into our plan for the year and again just looking at January and February.
Linda Tsai: Or.
Linda Tsai: That's better than the prior year. So we're off to a really good start and I can tell you when I look at our markets our regions, we're seeing a pretty consistent.
Linda Tsai: Downward trend across the board I mean, it was pretty amazing to see January was sub 30% turnover I've never seen a number like that and so its pretty much broad based across the country because.
Linda Tsai: With the implementation of our CRM all the efforts that we have on the data we are attacking it in every market every property and quite frankly every individual residents that we have at the property. So it should be kind of broad based.
Speaker Change: Are there more costs associated with reducing that turnover.
Speaker Change: A little bit this year, we're placing a little bit more of a bigger bet in terms of some of our capex spend and so again, we're going in we've identified some properties, where we've had just recurring issues as it relates to H, bdcs or water heaters or things of that nature, and if we can get engineering and trying to fix.
Speaker Change: Some of these recurring issues, we think that we can also limit how many people are losing out on a given basis, so a little bit more as it relates to the capex side of the house, but not necessarily on our opex.
Speaker Change: Thank you.
Speaker Change: Next question is from the line of Tayo, Okay in Seattle with Deutsche Bank. Please proceed with your question.
Speaker Change: The dial make sure youre not on mute.
Speaker Change: Okay.
Speaker Change: Hello Kitty.
Speaker Change: Yes, we can hear you now can you hear me.
Speaker Change: Perfect sorry about that.
Speaker Change: So just a quick question one of your peers are kind of increasingly doing more in terms of just kind of like town House Townhomes.
Speaker Change: Kind of looking a little bit more like a follow up.
Speaker Change: I'm just kind of curious how you guys think about that as an opportunity, especially given youre already in kind of some of the.
Speaker Change: Yes.
Okay.
Speaker Change: Yeah.
Speaker Change: This is to me, yes, it's a product I'm quite familiar with and have done in times in the past and if you go down to arbitrage and development in Dallas, you'll find that we've put up 85 homes down there on the townhome product.
Speaker Change: It only fits where you don't have enough density opportunity, okay, and so you look at long term hold periods than you would think about a site and where you would get the most cash flow density is always something we're striving for why it just gives us a bigger capital footprint and opportunity to grow so.
Speaker Change: It fits it's generally more of a suburban farther out fringe product.
Speaker Change: It can be a lot of good phase II type development activity. So we're familiar with it when we find sites that fit that template certainly have the capability execute leaning in.
We look down the whole risk reward grid of our capital deployment and Jos in charge of that now.
Speaker Change:
Speaker Change: Alright, thank you.
Speaker Change: [laughter]. Thank you.
Speaker Change: Our next question will be coming from Handel St. Joost. Please go ahead.
Speaker Change: Hey, guys I apologize for that earlier I had two quick ones.
Speaker Change: First is on development I guess, I'm curious, how you're factoring in potentially higher input costs and potential terrorists lumber labor into the high five you'll target you mentioned and I've got two or three projects that you were looking to start near term near term how much of those costs are locked in.
Speaker Change: Yep.
Speaker Change: So yeah after seeing costs come down there for a short period of time kind of it early 'twenty four.
Speaker Change: Cost estimates are really kind of stabilized at this point in time, so in our underwriting we have factored in some inflationary pressures.
Speaker Change: We are out there on our first start.
And building that out and try to work on cost right now and so that is a N process piece.
Speaker Change: A piece of the project starts.
Speaker Change: It starts that could potentially be in the second half of this year.
Speaker Change: So they're not locked in at this point in time so.
Speaker Change: That's a little bit fluid.
Speaker Change: Well on the tariff front, yeah, theres going to be a couple of concerns if in fact, those tariffs actually stuck in at what level.
Speaker Change: The lumber side of equation would be kind of a near term concern with the lumber supply coming from Canada.
Speaker Change: Obviously, other things like Mechanicals and glass and things of that nature that maybe at rest are dependent on the origin source.
Speaker Change: The flip side is that as you continue to see start activity plummet.
Speaker Change: There is greater availability of labor and so let's see what happens with the labor side subcontractors.
Speaker Change: They're able to squeeze out margins just to keep their people working fluid and are just seeing less wage pressure from certain trades. So there are some balancing factors to it but right.
Speaker Change: Right now we feel like we've sensitized at least the first deal to make sure we can move forward with it.
Speaker Change: Got it got it and then looking at.
Speaker Change: The eight projects in your future pipeline, how many are shovel ready today and maybe how many could be within the next couple of quarters just curious.
Speaker Change: How soon perhaps you could flex that potential pipeline up here over the next couple of quarters or so.
Speaker Change: Yeah, I'd say theres, probably four to five projects right now that if you fast forward over the next 12 months are either shovel ready or it could be shovel ready. So some of them going through kind of the tail end of designs and we continue to valley.
Speaker Change: Value engineer see what else, we can do to enhance yields that's a four to five of those projects could be ready within the next 12 months, if we needed to be.
Speaker Change: Okay.
Speaker Change: And the yields would be about the same.
Speaker Change: Yeah, that'd be about the same.
Speaker Change: High Fives to six is what we're targeting.
Speaker Change: Got it got it thank you.
Speaker Change: Okay.
Speaker Change: Thank you. Our final question is from the line of Mason go out with Baird. Please proceed with your questions.
Speaker Change: Hey, guys. Thanks for squeezing warm.
Do you have any update on that.
Speaker Change: Yeah.
Speaker Change: And then I'll throw them in thousand Oaks, maybe all day long.
Speaker Change: Has there been any change in demand getting hired.
Speaker Change: Okay.
Speaker Change: He mentioned I think we got part of that I think you were asking about thousand Oaks in demand.
Speaker Change: For that project.
Speaker Change: If that's not correct, obviously jump back on.
Speaker Change: If you could reiterate but.
Speaker Change: This project.
Speaker Change: Continue to see very strong demand. Unfortunately.
Speaker Change: Applications from the fires and so we are seeing that that project has gone from kind of low ninety's leased and occupied a few weeks ago up into the mid nineties already it continues to see good momentum and so that project is performing well.
Speaker Change: So what's an unfortunate circumstance.
Speaker Change: Hi.
Speaker Change: Hum.
Speaker Change: Sure.
And on that.
Speaker Change: On which piece of the maturities.
Speaker Change: Hum.
Speaker Change: Oh 1000 Oaks, yes.
It shows a shorter years to maturity.
Speaker Change: The equity partner is probably going to be looking at a short term extension on the loan just continuing to see momentum on.
Speaker Change: On the occupancy side. So we do think that probably transactions here they've got a good valuation good equity in that deal it should trade very well.
Speaker Change: But I think they'll probably extend here short term just to continue to work through what's going on out there in L. A.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: I would now like turn floor back to Tom Toomey for closing remarks.
Speaker Change: Yeah.
Once again, thank all of you for your time interest and support of UDR. We look forward to seeing many of you at upcoming events and with that take care.
Speaker Change: This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.