Q1 2025 UDR Inc Earnings Call
Greetings and welcome to Udr's fourth quarter 2025 earnings call.
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Speaker Change: It is now my pleasure to introduce your host Vice President of Investor Relations Trent Trujillo.
Speaker Change: Thank you Mr Hill, you may begin.
Speaker Change: Thank you and welcome to Udr's quarterly financial results Conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website IR Dot UDR dotcom.
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, we 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'd 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.
Tom Toomey: Thank you Trent and welcome to Udr's first quarter 2025 conference call.
Tom Toomey: Presenting on the call with me today are president and Chief Financial Officer, and Chief Investment Officer, Joe Fisher, and Chief Operating Officer, Mike Lacey.
Tom Toomey: Senior officers, Andrew Kantor, and Chris Van Ens will also be available during the Q&A portion of the call.
Tom Toomey: 2025 is off to a very solid start our first quarter same store revenue expense and NOI growth exceeded initial expectations due to a healthy fundamental backdrop combined with operating strategies, we employ to create value.
Tom Toomey: Trends have led to positive momentum across most key operating metrics, including lower resident turnover higher occupancy lower concessions and improving pricing power.
Tom Toomey: We feel good about 2025, thus far but we have only completed the first four months of the year Accordingly, and as is customary for UDR at this time of year, we have reaffirmed our full year 2025 guidance and we'll reassess as we progressed through peak leasing season.
Tom Toomey: Irrespective of how the macroeconomic and geopolitical environment unfolds, we remain strategically focused on three drivers of growth that differentiate us from peers and that we control.
Tom Toomey: Innovation.
Tom Toomey: We are not only leaders in idea generation, but more importantly, and execution. This is evident in the results from our value add initiatives, which have consistently grown in high single digit range and added 50 or more basis points annually to our same store NOI growth, we continue to add.
Tom Toomey: <unk> and expect to drive incremental growth for many years to come.
Mike Lacey: Mike will provide additional details in his remarks.
Tom Toomey: In this area.
Speaker Change: We listened to our associates and residents and use that feedback to influence our operating tactics and long term strategy.
Tom Toomey: One excellent example of this is udr's customer experience project.
Tom Toomey: We have an ability to orchestrate and enhanced GTR living experience through more than 1 million daily touch points with our existing and prospective residents.
Tom Toomey: Which helps improve the retention and lower cost to drive margin expansion and cash flow growth.
Tom Toomey: To enable this we have equipped our associates with actionable data and more responsibilities, which led to higher levels of engagement on their part more career growth opportunities as well and higher social retention.
Tom Toomey: This in part led to UDR being recognized by USA today as the top 2025 top workplace.
Tom Toomey: Which builds on UDR, its rich history as a leader in corporate stewardship.
Tom Toomey: And third we continue to execute on various forms of capital deployment to drive future accretion <unk>.
Tom Toomey: Including development debt and preferred equity deployment in joint venture acquisitions.
Tom Toomey: This activity is supported by our investment grade balance sheet.
Tom Toomey: With substantial liquidity that can fully fund our capital needs in 2025 and beyond this positions us well to take advantage of growth opportunities as they arise, which Joe will expand upon in his remarks.
Tom Toomey: Yeah.
Joe Fisher: There are also a variety of positive short term and long term fundamental drivers of our industry. These include first demand is strong and the chronic under supply of housing in the United States suggest this will persist.
Tom Toomey: Based upon third party data.
Joe Fisher: Nearly 140000 apartment homes were absorbed during the first quarter.
Joe Fisher: Which is a three decade high for the first three months of the year.
Joe Fisher: Demand is outpacing supply across many markets, which bodes well for occupancy and pricing into the future.
Joe Fisher: Second the pace of new supply is slowing.
Joe Fisher: 2024, multifamily completions marked a 50 year high.
Joe Fisher: But starts continued to decline due to the cost and availability of capital a.
Joe Fisher: The future supply pipeline that is below historical averages.
Joe Fisher: Well for rent growth in the years ahead.
Joe Fisher: And third renting an apartment is on average 60% more affordable than owning a single family home in the markets, where we operate.
Joe Fisher: The best level of relative portability in two decades.
Joe Fisher: So from a big picture perspective volatility macro uncertainty and there are effects on interest rates and the economy and the employment market are all out of our control. However.
Speaker Change: I and the team remained optimistic about the long term growth prospects for the multifamily industry and UDR unique competitive advantages that should enhance that growth.
Joe Fisher: We will continue to focus on what we do control.
Joe Fisher: Including our dynamic and innovative culture to create value for udr's residents and stakeholders.
Joe Fisher: Finally, I'd like to take a moment to recognize Jim King Bill who has decided not to seek reelection to our board Jim has been a valued voice in the boardroom that has brought a wealth of knowledge and experience. He has helped drive udr's transformation into a highly respected blue chip company.
Joe Fisher: We are today.
Speaker Change: Jim I. Thank you for all your contributions to UDR.
Joe Fisher: And the real estate industry and you'll leave the board in good hands.
Mike Lacey: With that I'll turn the call over to Mike.
Mike Lacey: Thanks, Tom today I'll cover the following topics.
Mike Lacey: First quarter same store results.
Mike Lacey: Second quarter, 2025 trends, including an update on our various innovation initiatives and how this factors into our full year 2025 same store growth guidance and expectations for operating trends across our regions.
Mike Lacey: To begin first quarter year over year same store revenue and NOI growth of 2.6% and two 8% respectively were better than expected and driven by first <unk>.
Mike Lacey: <unk>, 9% blended lease rate growth.
Mike Lacey: It was driven by renewal rate growth of four 5% and new lease rate growth of approximately negative 3%.
Mike Lacey: Our blends accelerated sequentially by 140 basis points, which is twice as much as our historical sequential acceleration between the fourth quarter and first quarter.
Mike Lacey: Second 32% annualized resident turnover was more than 300 basis points below the prior year period, and nearly 700 basis points better than our first quarter average over the last 10 years. This has enabled us to maintain healthy renewal rate pricing and lead to more favorable blended lease rate growth.
Mike Lacey: Third.
Mike Lacey: Occupancy averaged 97, 2%, which is higher than our historical first quarter average and 40 basis points higher sequentially versus the fourth quarter. This.
Mike Lacey: This strategic decision to build occupancy during the seasonally slower leasing period helped to drive revenue and NOI outperformance to start the year and positions us well as we enter our traditional leasing season.
Mike Lacey: And fourth our other income growth from rentable items was 10% driven by our continued innovation along with the delivery of value add services to our residents.
Mike Lacey: Shifting to expenses year over year same store expense growth of only two 3% in the first quarter came in better than expectations.
Mike Lacey: These positive results were driven by favorable real estate taxes insurance savings and constrained repair and maintenance expenses due to our improved resident retention.
Mike Lacey: Moving on core operating trends have remained resilient in April and key metrics have largely followed typical seasonality.
Mike Lacey: First blended lease rate growth has continued to improve sequentially. If this trend holds through June our first half 2025 plants would be towards the high end of the one 4% 1.8% range I spoke about on our last earnings call in February.
Mike Lacey: We feel confident in the trajectory of rental rate growth as renewal rate growth has held steady in the mid 4% range and new lease rate growth has improved sequentially since the start of the year.
Mike Lacey: Second occupancy remained strong and in the high 96% range today.
Mike Lacey: Traffic is similar to historical norms at this time of year and our 30 day availability is approximately 4%, which supports our expectation of occupancy remaining in the mid to high 96% range for the rest of 2025.
Mike Lacey: Third resident retention continues to compare well against historical norms and April represents the 24th consecutive month or a year over year turnover has improved.
Mike Lacey: Our full year guidance assumes resident turnover will be 100 basis points below that of 'twenty 'twenty four year to date, we have exceeded this expectation by 200 basis points, which translates to approximately $7 million of higher cash flow. If we maintain this outperformance for the rest of the year.
Mike Lacey: Continued enhancements in how we measure map and orchestrate the customer experience have increased the probability of renewal and we expect this to drive further year over year improvement in turnover and margin expansion in years ahead.
Mike Lacey: And fourth other income from rentable items, which constitutes roughly 11% of our total revenue continues to grow in the high single digit to low double digit range.
Mike Lacey: We remain pleased with the trajectory of our initiatives and property enhancements such as the further rollout of building Wi Fi further penetration of package lockers and less fraud loss, which collectively contribute to incremental same store revenue growth and improve the customer experience.
Mike Lacey: When considering these factors our same store results are trending above the midpoint of our guidance expectations.
Mike Lacey: However, we are cognizant of potential volatility that could affect the macroeconomic environment and pricing of our apartment homes. Accordingly, we will remain focused on executing our strategy and will provide an update to our same store growth guidance. During our next earnings call. After we have additional visibility on demand trends.
Mike Lacey: Turning to regional results, our coastal markets are exceeding our expectations, while our Sun belt markets have performed largely in line.
Mike Lacey: Specifically, the east coast, which compromises approximately 40% of our NOI was our strongest region in the first quarter.
Mike Lacey: Washington D. C was our best performing market overall, and Boston results were above our expectations.
Mike Lacey: First quarter weighted average occupancy for the East Coast was an astonishing 97, 5%.
Mike Lacey: Blended lease rate growth was two 5% and our year over year same store revenue growth was approximately four 5%, which is slightly above the high end of our full year expectation for the region.
Mike Lacey: With healthy demand and relatively low approximate new supply completions, we expect this regional strength to continue.
Mike Lacey: The West Coast, which comprises approximately 35% of our NOI has performed better than expected year to date.
Mike Lacey: First quarter weighted average occupancy for the West Coast was 97, 2%.
Mike Lacey: Blended lease rate growth led all regions and nearly 3% and year over year same store revenue growth was nearly 3%, which is close to the high end of our full year expectations for the region.
Mike Lacey: We continue to see positive momentum across Seattle, and the San Francisco Bay area due to return to office mandates increased office leasing activity and quality of life improvements.
Mike Lacey: Annual new supply completions remained low at 1% to one 5% of existing stock on average across our west coast markets, which we expect will lead to a favorable supply demand dynamic in the coming quarters.
Mike Lacey: Lastly, our sunbelt markets, which comprise roughly 25% of our NOI continue to lag our coastal markets on an absolute basis due to elevated levels of new supply.
Mike Lacey: Or is it simply the supply has been met with demand and strong absorption first quarter weighted average occupancy for the Sunbelt was 97, 1% blended lease rate growth was negative two 5% and year over year same store revenue growth was slightly positive which is in line with our original expectations for the region.
Mike Lacey: Our sunbelt markets Tampa and Orlando are performing the best.
Mike Lacey: To conclude we delivered strong first quarter 2025 results same store revenue expense and NOI growth were all better than expectations and near the high end of their respective full year guidance ranges.
Mike Lacey: The near term operating environment presents some uncertainties, but we have a track record of successfully navigating through bouts of volatility.
Mike Lacey: Our diversified portfolio dedicated associates and continued innovation enable us to tactically adjust our operating strategy to maximize revenue and NOI growth, while we further expand our operating margin over time.
Joe Fisher: I. Thank our teams for their ability to deliver operating excellence and improve how the industry conducts business I will now turn over the call to Joe.
Joe Fisher: Thank you Mike.
Joe Fisher: <unk> I will cover today include our first quarter results.
Joe Fisher: A summary of recent transactions and capital markets activity.
Joe Fisher: And our balance sheet and liquidity update.
Joe Fisher: Our first quarter of <unk> as adjusted per share up 61 cents.
Joe Fisher: Achieved the midpoint of our previously provided guidance and was supported by same store growth that exceeded our expectations.
Joe Fisher: The modest sequential <unk> per share decline occurred as expected and was driven by the following.
Joe Fisher: A one penny decrease from same store NOI, primarily due to higher sequential expenses attributable to normal seasonal trends.
Joe Fisher: A half Penny decrease from G&A, which is also due to seasonality and the timing of associate compensation increases.
Joe Fisher: And a half penny decrease from lower debt and preferred equity investment balances and accruals.
Joe Fisher: Looking ahead, our second quarter <unk> per share guidance range of 61 to 63 cents.
Joe Fisher: The 62 cent midpoint represents a one penny or one 5% sequential increase and is driven by same store NOI growth and additional lease up NOI from recently developed communities.
Joe Fisher: Next a transactions and capital markets update.
Joe Fisher: First during the quarter, we completed the previously announced sales of two apartment communities in the New York Metro area for aggregate gross proceeds of $211 5 million.
Joe Fisher: Second.
Joe Fisher: We commenced development of $30 99, Iowa, a 300 home apartment community in Riverside, California, with an expected total development cost of approximately $134 million and an expected yield of 6%.
Joe Fisher: We continue to evaluate additional development starts for late 2025 and early 2026.
Joe Fisher: Third we increased our investment in 1300 Fairmount <unk>.
Joe Fisher: 478 home apartment community in Philadelphia by acquiring the senior loan from the lender for $114 5 million.
Joe Fisher: This action brings Udr's total investment in the property to $183 $2 million and by acquiring the senior loan UDR has more control over the investment and the future performance of the community.
Joe Fisher: And fourth subsequent to quarter end, we fully funded a $13 million preferred equity investment at a 12% rate of return on a stabilized apartment community located in the San Francisco Metro area as part of a recapitalization.
Joe Fisher: Positive property level cash flow allows for approximately two thirds of our contractual return to be paid current and cash.
Joe Fisher: Finally, our investment grade balance sheet remains liquid and fully capable of funding our capital needs.
Joe Fisher: Some highlights include <unk>.
Joe Fisher: First we have more than $1 billion of liquidity as of March 31.
Joe Fisher: Second we have only $535 million or 9% of total consolidated debt and approximately 2.5% of enterprise value scheduled to mature through 2026, thereby reducing refinancing risk.
Joe Fisher: Our proactive approach to managing our balance sheet as a resulted in the best three year liquidity outlook in the sector and the lowest weighted average interest rate amongst the multifamily peer group at three 4%.
Joe Fisher: And third our leverage metrics remain strong.
Joe Fisher: To enterprise value was just 27% at quarter end, while net debt to EBITDA was five seven times.
Joe Fisher: And all our balance sheet and liquidity remained in excellent shape.
Joe Fisher: We remain opportunistic in our capital deployment.
Joe Fisher: 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.
Joe Fisher: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
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Speaker Change: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Speaker Change: Okay.
Speaker Change: The first question comes from the line of Eric Wolfe from Citibank. Please go ahead.
Nick Joseph: Thanks, It's Nick Joseph here with Eric.
Speaker Change: Wondering if you could talk about your confidence in the ability to see rent trends pick up in the second half relative to the first half is implied with guidance just given the macro uncertainty and and what youre seeing or what we're seeing with the consumer.
Speaker Change: Yeah, Hey, maybe I'll kick it off I guess I would start first with the macro environment in terms of some of the tailwind that we've talked about in the past. So as we've talked about supply is down about 20% year over year from 24 to 25 and that really continues to decelerate from <unk> all the way through <unk>. So we continue to see.
Speaker Change: The pressure from that front continuing to decline so concessionary environment remains stable, we're seeing good pricing power in terms of ability to push up rents still seeing good traffic. So everything we see today looks good that forward trend with supply coming down looks good and then you have the relative affordability component combined with still pretty strong.
Speaker Change: And out there in terms of still seeing job growth still seeing wage growth.
Speaker Change: Let's say the macro backdrop wall volatile and somewhat fluid.
Speaker Change: For what we can see today, we still think we have a good avenue towards that number on a on a go forward basis.
Speaker Change: The other thing we've kind of talked about is if you looked at the blended lease rate growth to date, and Mike can kind of get into it but relative.
Speaker Change: Relative to where we need to be for full year. It implies only about 3% blended lease rate growth for the rest of this year relative to the mid twos that we're putting up in April and so we only need to see acceleration versus April of about 50 basis points or $12 per unit and if we don't see that the downside risk is relatively minimal at roughly 20 bps the same store.
Speaker Change: Our revenue from a full year basis, so we feel pretty good about the risk related to the guidance as well.
Maybe if I can just add a couple of points here I think it's important to talk a little bit about what we're seeing in April and I'll tell you the trends are strong across the board.
Speaker Change: I think our strategy to drive occupancy up during the shoulder quarters really set us up for leasing season, and you can see it playing out but I would remind the audience that we're really focused on total revenue not just plans. So we're looking at how we leverage our occupancy how we're driving our other income initiatives and in total our revenue continues to look favorable against the group, but a couple of things I'd point out in.
Speaker Change: In April we just finished the month occupancy was nearly 97% and our blends we're in that mid 2% range. So we are on track to deliver what we expected during the first half of the year and to Joe's point, when we get into the back half. We typically have plans of around 4% just from historical trends.
Speaker Change: We're only saying 3% today, so we still feel comfortable about what we've put out there in the back half of the year.
Speaker Change: Thanks, That's very helpful. And then just on the senior loan you bought on the Philadelphia asset to the extent that you end up owning and consolidated that.
Speaker Change: The initial cap rate be and then what do you think it could stabilize it.
Speaker Change: Yes fair.
Speaker Change: Fair question, So just a little recap there I think everybody remembers back in fourth quarter, We took a reserve and moved our prep equity investment onto a non accrual status. So and <unk> is the senior loan went into default we chose to purchase that senior loan $414 million, we did not actually recognize any.
Speaker Change: Income related to that we kept it on nonaccrual status. We did have to have the drag of course from funding that investment so that held back our <unk> result, a little bit, but as we move into <unk>. We expect that we're going to be able to consolidate that asset and take control of that investment and get our operational team in there and so that's kind of the sequence of it when you.
Speaker Change: Look at the yield on our basis of roughly $183 million on a forward basis, we're probably going to be about a 4% now that factors in some upside from getting our operational team and they're continuing to see occupancy move forward, which is kind of in the mid 80 fives tried today. So we need to see occupancy pick up it's a really challenged submarket.
Speaker Change: But we do think will be a mid fours in year, one and then we'll have a path to get up to around 5% on a basis over the next couple of years as we get some ops initiatives in there and see that sub market stabilize.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Michael Goldsmith from UBS. Please go ahead.
Speaker Change: Hi, This is Amy on for Michael I'm curious as you rollout the bulk Wifi does that at all impact your ability to push on renewal rents. So if the tenant is paying a rent increase plus an add on or are they more likely to try to negotiate.
Speaker Change: Or maybe said another way and as we lap the bulk wine rollout could you see more pricing power on renewal.
Speaker Change: Yeah, maybe a couple of things just to set the stage with our Wi Fi rollout just give you an idea of where we're at we have rolled out about 30000 homes. At this point, we do have another 10000 to go this year I would tell you we do monitor new lease growth renewal growth, where we're at with occupancy and I could I would tell you that that four and a half that we're achieving.
Speaker Change: Today is right in line with the peer average so we don't feel like we're giving up anything there and in fact, we're seeing more of an acceleration on our Glenn as we go into April today, and so the rollout is going well and we do not believe that it's impacting our ranks in anyway.
Speaker Change: This is to me I might add a little bit one I mean, we all realize high speed is in essence, not a option anymore. It is a necessity.
Speaker Change: Second given our bulk purchase of it we have an expanded margin over the rest of the industry with respect to we own a little bit of the action of the company, we buy it in bulk and the markup. So it's we've got better margins on that aspect of it accordingly.
Speaker Change: A better service at it Joe you were going to add some yeah. I was just going to say I mean, it's not all that different from a lot of our initiatives that we have out there in terms of we're trying to find win wins for the customer and for ourselves and so the win or the value proposition here for the customer on Wi Fi is that it is fully set up day, one so you're not having a call.
Speaker Change: All your cable company or Wi Fi company have them put the equipment in and come get it installed you also have built in wide or property wide Wi Fi. So if you want to walk down to the pool walk to the Jim walked through the business Center Youre going to have it everywhere throughout the community not just in your unit and from a price perspective, we do look at all the pricing.
Speaker Change: And options on competitor options make sure we price commensurate with the market. So we're giving them better value similar speed similar price. So really good reception on that front and that's what we've found we've been able to do it in a lot of the other initiatives, whether it's parking or package lockers or many of the others that Mike's talked about in the past.
Speaker Change: Got it thanks with my belt, they're going to do that.
Speaker Change: And then a quick one on the San Francisco recap, what got you comfortable with that deal just given some of the top of all that we've seen with some of these other D. P E tail.
Speaker Change: Yeah.
Speaker Change: Good question, probably first stepping back and just thinking about a couple of those troubled investments that we had within the D. P. A portfolio I think you really have to rewind back.
Speaker Change: There's plenty of new work.
Speaker Change: These were post COVID-19 type of investments.
Speaker Change: It started when we were running the engine delays.
Speaker Change: And federal perspective, she had material delays in a number of them that led to cost overruns. Generally in addition, the once we've really had the trouble with had been more urban oriented and so some of these urban areas as we've talked about in the past just have not come back to the same degree that the rest of the portfolio has so whether that's a couple of the troubled assets we had.
Speaker Change: San Francisco or the one in Philadelphia that we've talked about.
Speaker Change: There's some issues that historically existed that no longer exists today as we think about the go forward environment.
Speaker Change: As we looked at the San Francisco recap deal you've seen us do more and more of these from a exposure standpoint, or a derisking of the DPA portfolio perspective trying to do more recaps on operated assets, where you know the rents you know the income statement you know the markets and know how it's going to perform so we've had less and less development exposure over time.
Speaker Change: This deal is another one of those recaps, where we had a chance to come in to an operating asset.
Speaker Change: That last dollar LTV is kind of in the mid seventies, starting to handle low sixty's and from a cash pay perspective about 70% of our income is actually being paid on a current basis and so that helps de risk the cash flow and the accrual as well. So we feel really strongly about the investment that we've made here.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you the.
Speaker Change: The next question comes from the line of Austin Watchman <unk> from Keybanc capital markets. Please go ahead.
Speaker Change: And Mike just wanted to hit back on some of the acceleration and blends you've discussed in and really which markets you're seeing the most acceleration month to month and just curious if you've seen any you know any of the markets I guess hit a speed bump as you get into April in some of the higher exploration months.
Speaker Change: Oh, that's great question Austin.
Speaker Change: From what we're seeing today.
Speaker Change: Almost across the board, we've seen a little bit of a pickup from what we saw in the first quarter. So again, we're around 0.9% right around the mid to today and I would tell you that the most acceleration I saw in the last probably 30 45 days was probably in the Sunbelt just in terms of what we're seeing in Texas and Florida.
Speaker Change: We're starting from a really low low point in Austin.
Speaker Change: We did see an acceleration of about 500 basis points. There so that gives us a little bit of.
Speaker Change: But you know in addition to that I would tell you D. C continues to do well get a lot of questions about that market I think we're around three 5% blends in <unk> and we were right around 4%. During April so that market's picked up Austin continues to do well for us on the east coast.
Speaker Change: That's a market we expect it to be a little bit slower to start the year, just given a little bit more elevated supply, but that one has actually held up really well too and then I would tell you on the West Coast, San Francisco and Seattle continue to do well I wanted to say San Francisco is around 4% blends pretty consistent with what we've seen over the last 90 days by Seattle.
Speaker Change: <unk> taken off a little bit more and that market is running around four 5% compared to right around 225% in <unk>, so a little bit of strength in all of our regions today.
Speaker Change: And we feel good about the trajectory.
Speaker Change: And it seems it seems pretty upbeat, but I guess when you look across the three primary regions.
Speaker Change: By tracking ahead here before I mean anything youre doing from an operating strategy perspective to maybe derisk the back half of the year in any way you can.
Speaker Change: Couple of things, we're looking at and obviously, we've already sent out renewals through call. It.
Speaker Change: And we're starting to create July and August our expectation is we're going to send out between four 5% to 5% and if we have to negotiate a little bit more we will but we do feel like we have some momentum on our side I'm starting to see new lease growth get a little bit better in fact, it was flat in April which is a big difference from that negative 3% I talked about in <unk>.
Speaker Change: <unk> and so that gives us a little bit momentum allows us to try to drive our renewals up and Youll continue to see us when we talk about this every year drive our occupancy down a little bit as we go into that high demand period during the second and third quarter. It allows us to push our rates a little bit more and start to set up the back half of this year. So all in all.
Speaker Change: Youll continue to see us drive our rents where we have the opportunities.
Speaker Change: Not a blanket across the entire portfolio every market's a little bit different but we are going to get a little bit more aggressive as it relates to pricing.
Speaker Change: Very helpful.
Speaker Change: Thanks for the time.
Speaker Change: Thank you. The next question comes from the line of Jamie Feldman from Wells Fargo. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Hi, Thank you for taking the question. This is keefer Clark on for Jamie Joe Just wondering if you could talk about the yields you see right now across development wholly owned acquisitions and JV acquisition City gear at Lasalle J D and how the conversations are picking up with Lasalle, whether you're underwriting more deals versus this time last year.
Speaker Change: Yep.
Speaker Change: Yeah. Thanks for that I would say from the joint venture perspective, we are actually showing an underwriting significantly more deals with our partner there at Lasalle I think we mentioned in the past their capital partner had really been kind of on hold last year as I step back and reassess the overall global mandates given their exposures.
Speaker Change: Movements in the yen. So we really got the Green light early this year. So we're showing them pills and moving ahead I do think that by the time, we get on this call in July we will probably be able to talk about a deal that we've been underwrite in in pursuing and hopefully we will have a close by then so I think there'll be more to talk about well by the time, we get out to July.
Speaker Change: And I get four cap rates broadly.
Speaker Change: You are still seeing quite a bit of price discovery. If you look at volumes closed just in the first quarter and even going here into April and were only slightly below where we were at pre COVID-19 and so while volumes are down materially from kind of 'twenty. One 'twenty two 'twenty three period, we are still seeing good price discovery I'd say, if youre kind of a main and main asset.
Speaker Change: Newer vintage good fundamental trends youre pricing well into the fours, so kind of in that mid <unk> type of range.
A little bit more off the beaten path a little bit older quality less of a fundamental story may be facing some near term supply. Yes, you can price up into the fives. So there is some dispersion in the cap rates that you were able to underwrite obviously the levered buyer has not been there as much. So some of those b quality assets still are pricing as well as they were in the.
Speaker Change: Past.
Speaker Change: That gives you a range of the cap rates.
Speaker Change: If you think about the development side that you asked about.
Speaker Change: You really still see in the market try to underwrite up into the low to mid sixes for new opportunities.
Speaker Change: Say as it relates to our development pipeline.
Speaker Change: He started a deal out in Riverside and first quarter, we're underwriting that to about a 6% yield and so we're trying to do a couple of things with our land pipeline.
Speaker Change: One is go out there and get that activated we do have a larger non income producing asset there with our land pipeline, we'd like to see that get activated and two when you look at the starts going forward. We do have a couple of others ready beyond the Riverside deal one in northern Virginia as one in Dallas that we think probably later this year early next.
Speaker Change: <unk> will be started so we're working on a lot within the pipeline, but we're not necessarily looking for new land acquisitions at this time.
Speaker Change: Great. Thanks, and then I guess kind.
Speaker Change: Kind of just following up on that in the past you've talked about being in more of a capital light mode with the development start this quarter more to come and then some of the Lasalle activity does this represent a shift into more of an opportunistic approach and is the likely funding here just gonna be through capital recycling and dispositions.
Speaker Change: Yep.
Speaker Change: I can probably repeat your question and give it as an answer we are much more on the capital balanced or opportunistic mode. At this point in time, so with DTE continue to blur there as we get payoffs overtime, which would add number of payoffs in the last part of last year and trying to forecast out what we may get in the future. So we will be recycling capital there.
Speaker Change: Thanks time and makes sense on the development side to activate that land, we continue to see supply come down. This year, but also starts are down materially down into that kind of 250 300000 units per year nationally and so as we lease up into that environment here in a couple of years, we think development starts makes sense today.
And then on the JV side, Yeah, I think we've been pretty open we do want to continue to grow that joint venture platform. We've got five deals under our belt with them and hopefully well have another one to speak to in the next 90 days on multiple thereafter, so we're trying to be opportunistic and figure out where we can create value on the offensive side and on the sourcing side it really.
Speaker Change: It's gonna be disposition, so working that through our asset management committee and understanding.
Speaker Change: Which assets, maybe a little bit more full from a yield perspective from a margin perspective from a initiatives perspective, and kind of been tapped out on that front, maybe they have some capital issues that we don't feel comfortable addressing or maybe we just don't like the market or micro market or kind of asset location. So we're trying to be pretty thoughtful on that front with recycling.
Speaker Change: Capital.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Jan on the line from Bank of America. Please go ahead.
Jan: Thank you hi, everyone.
Jan: <unk> from Mike I appreciate you running three D printing blends from first quarter to first quarter from fourth quarter by market and then the only market that its banking the trend the southwest region. So just curious if you could kind of talk about expectations for Dallas and Austin and if you think this quarter it could potentially be the trough for new leases.
Jan: Yeah.
Jan: Yeah, similar to what we've talked about in the past, we believe that Florida is probably more of a trough and they are actually starting to feel more positive momentum and so for me if I had to rank them. They definitely would go Tampa <unk> seeing an inflection point seeing positive blends in that market followed.
Jan: By Orlando is a close second seen more momentum there so could see positive new lease growth in that market sooner than say, Texas or Nashville, our expectation is Nashville, maybe end of the year, maybe beginning of next year you start to see some positive momentum on volumes are all by Austin as probably the laggard of the group today.
Jan: And again just to remind the audience that is only a one 5% NOI market for us are relatively small but that market does have a lot of supply that's going to have to work through and our expectations are it's going to be the end of this year into next year before we start to see that positive momentum if you will.
Jan: Thank you.
Jan: Yeah.
Jan: Okay.
Jan: Thank you.
Speaker Change: The next question comes from the line of John Kim from BMO Capital markets. Please go ahead.
Jan: Thank you.
Speaker Change: I wanted to go back to the.
Speaker Change: Reiteration of your blended for the first half of the year in upper half of our one 4% to 20% I.
Speaker Change: I guess with renewals remaining in the mid fours I think that implies back of envelope with new lease growth.
Speaker Change: 1.5% to 2% positive in the second quarter and that would be a turnaround from what you've even achieved in April. So I just wanted to make sure that math is correct I don't have all the.
Speaker Change: And I understand me.
Speaker Change: Yes, John I mentioned in my prepared remarks, if we can capture this two and a half ish that we're seeing in April through the rest of the second quarter that puts us on the top end of that 1418 that we said at the beginning of the year that we needed in the first half we feel like we're right on track there and so as it relates to the back half.
Speaker Change: For the year, we don't expect to see much of a difference in the third quarter.
Speaker Change: Just going to depend by market by region, but again as we started the year, we're right on track.
Speaker Change: Yes perfect.
Speaker Change: Focus on adobe's growth rate.
Speaker Change: Turning positive in the second quarter.
Speaker Change: Oh, that's playing out as we expected to so our expectations were that we would be right around flat new lease growth as we turned the corner into leasing season, and I'm happy to say that's exactly how it's playing out renewals again staying in that four 5% range. We may start to move that push that envelope a little bit as we go into.
Speaker Change: <unk>, but right now new lease growth feel good at that flat and ideally it will continue to move up as we progress through the leasing season.
Speaker Change: Okay, and the value added services on innovation.
I think the last update was $15 million incremental.
Speaker Change: This year are you still on track to deliver that or could there be upside to that figure.
Joe Fisher: Yes, John it's Joe.
Joe Fisher: We are still on track from other income perspective, so contribution coming from that we continue to see high single digits kind of double digit type of growth on the other income light on them. So still seeing good success on that front like I went through some of the Wi Fi earlier still pushing parking and still pushing package lockers and a lot of the other initiatives that we have to go in there and.
Joe Fisher: Then obviously on the customer experience side, which really hits all line items from topline rather than occupancy other income turnover expense capital.
Joe Fisher: So you had really good success. There I think everybody saw we were down about 300 basis points year over year on turnover, so having record low turnover here to start the year, which is doing a little bit better than expected and so I'd say everything remains on track from an initiative perspective.
Joe Fisher: Great. Thank you.
Joe Fisher: Thank you.
The next question comes from the line of Rick Anderson from Bad Bush Securities. Please go ahead.
Rick Anderson: Hey, thanks.
Ben: Good morning out there so I'm on the topic of turnover this is Ben.
Ben: A recurring theme for you and for others over the past several years of declining.
Ben: And I'm wondering BC.
Ben: Besides the fact that you're awesome operators blah blah blah.
Ben: Keep it will encourage people to stay what is happening outside of that that's encouraging turnover is 32%.
Ben: Reporting today.
Speaker Change: Obviously, a good number but at what point does it become too low where you start to lose an opportunity to capture some rent upside. So I'm curious, where you know where we might go from here from a turnover perspective zero turnover zero. The best I don't know you tell me.
Ben: Yes.
Ben: Thats, a really good question and feel free to jump in if you guys have anything I think for us the way we look at it and we've really gone back and I would tell you from about 2012 to 2019, our average turnover was just over 50% and so we've made a lot of progress on this initiative over the last few years in fact last year we were.
Ben: 143% expectations as I mentioned earlier in the year as we're trying to get another 1% better we're on track to be about 3% better and I didn't think I mentioned it but in April we were about 4% better on a year over year basis. So continues to look really good but to your point I think for us it's more of a.
Speaker Change: Transformation transformational shift away from that transactional focus and we are more focused on that lifetime value of the restaurant. So understanding who has been with us a long S who's paying more rent than others what.
Speaker Change: Kind of interactions we have with these individuals and just trying to change that trajectory. If you will and so the teams I mean at this point they've got the tools they've got the training the resources. They know how to rectify these bad experiences if you will and it's leading to a positive impact across turnover price.
Speaker Change: <unk> occupancy other income expenses and ultimately our margin. So we're leaning into it it's playing out and we're excited about what's to come I think for this year, we've mentioned that in the past.
Speaker Change: We are looking to allocate more capital to try to solve those problems that we've identified that are more recurring in across properties. If you will and thats issues at move in its call back tickets at its backlog of issues across the property, we're solving those things and we're seeing it play out in our numbers.
Speaker Change: Addition to that I'm happy to say, we're about halfway through rolling out funnel, our new CRM.
Tom Toomey: Got past the market's done we expect to be done by the end of May with that we believe that that is going to make us more efficient as it relates to working with our residents as well. So we think theres more to come here and we're excited about what the future has in store rich. This is toomey a couple of points of emphasis and I'll make sure to pass on to the rest of the operating team.
Tom Toomey: That they are really good at blah, blah, blah, blah blah, but in all seriousness.
Tom Toomey: Oh.
Tom Toomey: You have to think about we set out to change how the industry does business in and it shows up in a lot of different metrics and I know that people isolate on blends are they isolate on turnover. It really just comes down to total revenue performance okay.
Tom Toomey: And for Us.
Tom Toomey: You've heard us talk about a number of initiatives over the year from bad debt, we looked like we bent the curve there and its closing in back to pre pandemic levels at 1%.
Tom Toomey: That's a heck of a lot of work to ensure we get high quality people in the door, Mike talked about how we do tours differently, how we service differently. How we have fewer days available to rent I mean everyday that we do not have someone renting an apartment it as lost revenue to us so keeping people in longer we run.
Tom Toomey: At a higher occupancy.
Tom Toomey: We have more revenue out of that apartment community home than anyone else and we're always still trying to find ways to do it. So I think just focusing on the turnover, yes, it's historically low at 32 weeks.
Tom Toomey: We'd still like to see it go down.
Tom Toomey: Not at the sacrifice of total revenue.
Tom Toomey: And so yes, we do in essence move our pricing dynamically to ensure we're building a total revenue picture that is optimal.
Tom Toomey: Great sorry about that yes.
Tom Toomey: I don't mean to trivialize the extraordinary operating I just want to get to my question.
Tom Toomey: That's an inspirational for them.
Tom Toomey: So the second question for me is I did check your work and your you have.
Tom Toomey: History or tradition of not adjusting guidance in the first quarter.
Speaker Change: At least going back a few years, but I'm wondering based on what Youre seeing today had it not been for.
Liberation day, and in all of the disruptions that potentially could come from it from a consumer recession standpoint.
Speaker Change: Would you be toying with raising guidance at this time, if not for that noise or where you never really theyre in it.
Speaker Change: The whole tariff issue really had no inner play into your decision to not raise guidance at this time.
Speaker Change: <unk>.
Speaker Change: I would say number one precedent and our pricing is really never gotten the raised guidance. After the first quarter, which I think is generally commensurate with what we see out of the sector.
Speaker Change: Number two I'd say, we really do focus in on is how we finished out how we start and so while we are very very excited about the start to the year and I think all the commentary that you're hearing today. We are very excited we are trended ahead. There is still a lot of unknowns there still a lot of work to do and so we didn't really talk about it much.
Speaker Change: Feeling really great about the start of the year. They will give you hopefully a really good update when we get out to July into Q.
Joe Fisher: Okay. Good enough for me Thanks, Joe Thanks, everyone.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Handel St. Juste from Mizuho. Please go ahead.
Speaker Change: Okay.
Yeah.
Speaker Change: Yeah.
Speaker Change: Okay, Yeah I'm here.
Speaker Change: Do you think I've done this before right. So our first question a happy with just on the overall mezz lending conversation the environment I'm, just curious kind of what level of inbound I'm assuming there more are you seeing these days is as are some post grappled with rates being a bit higher maybe macro uncertainty.
Speaker Change: So I guess I'm curious.
Speaker Change: Overall, the level of inbounds, you're getting relative is that is increasing and perhaps if your appetite could be changing is that could be a sort of capital deployment upside this year.
Andrew Kantor: Hey, Hunter. This is Andrew Thanks for your question.
Speaker Change: What I would say is is that the number of inbound development deals is definitely declining from where it was historically there was by far less of those type of deals coming in and as Joe mentioned those are not the deals were focused on.
Speaker Change: On the other hand deals where we can go in and re.
Speaker Change: Recap operating assets that is increasing from where it's been historically.
Speaker Change: But I wouldn't tell you. It's at the same levels of incoming calls or incoming prospects that we've had historically, it's still below that historical average.
Got it okay.
Speaker Change: And then one just quickly I haven't heard any update recently on the CFO search, but perhaps maybe an update there on on that and if we can expect.
Speaker Change: Year by the follow up just curious on where things stand.
Speaker Change: And we're not focused on the timeframe, what I would update since the February call.
Speaker Change: We got a very robust response we.
Speaker Change: We have a very very deep pool of candidates and we're now starting the face to face interviews. So I feel very optimistic about the position of general feel relieved when we.
Speaker Change: Take one more with the C suites all of them, but.
Speaker Change: Yeah, we feel really good about it and us.
Speaker Change: It's finding the right fit for the team in the future and our strategy. So feel really good about the position.
Speaker Change: Thanks, guys.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Alexander Goldfarb from Piper Sandler. Please go ahead.
Speaker Change: Hey.
Speaker Change: Good morning out there and thank you.
Speaker Change: So two questions for you first Andrew on the transaction market, Yeah, I've heard different things. Some some folks have said that deals have gone sort of quiet just because of the disruption others out there have said no deals are still active as long as interest rates are low so just sort of curious what you guys are.
Speaker Change: Seeing overall in the transaction market and how buyers and sellers look at you know the disruption versus the 10 year that still you know relatively attractive.
Speaker Change: Yes.
Andrew Kantor: It's Andrew.
As you said there is theres different feedback in the market on that today and I think it's very market specific.
Andrew Kantor: And then also very asset specific but overall I would say that most buyers who are buying today. So those who are executing our focus more on 26 and 27. After the current wave of supply has been delivered the looking at those operating fundamentals rather than the current interest rate volatility and then I'd say the other thing that we're here.
Andrew Kantor: A lot about is basis right what is the basis on buying this asset at and how does that compare to replacement cost. So those that believe in those two things a looking beyond the current interest rate and be looking at basis. Those are the ones that are buying and those people are still very active.
Andrew Kantor: Okay and then the second question is are the Riverside development.
Andrew Kantor: Yes, I guess not since vre was around do we hear much about inland Empire, but just sort of curious your thoughts on executing a development out there versus <unk>.
Andrew Kantor: Investing that capital in an infill market or in a market that you may have.
Better cost dynamics I understand that you own the land for awhile, presumably you'd looked at trying to sell it maybe you did maybe you did but just trying to understand putting money out in riverside versus elsewhere.
Andrew Kantor: Yeah. So like I mentioned, we have been involved with this project I think going back to 2019 is when we first started working with.
Andrew Kantor: What was then our partner on the project that we bought out over time. So we've had it for a while we've been monitoring it as we've come through kind of some of the disruption in the last couple of years, we've been a little bit more pencils down on development haven't had much in the way of starts.
Andrew Kantor: As we went through all the available parcels that we have and continue to evaluate options on all of those this was the first one that popped up that hit our yield thresholds and that we felt most confident in the ability to move forward near term and so I think I mentioned earlier about a 6% return and so the ability to get that type of return brand new asset.
Andrew Kantor: It's been a good market it's in a good location between downtown Riverside and close to the campus there.
Andrew Kantor: We think we've got a good location, that's going to be a good basis on that deal and so we move forward on that one.
Andrew Kantor: And I think we'll have another couple starts that we'll have later this year that we'll be able to move forward on.
Andrew Kantor: Thank you.
Andrew Kantor: Yeah.
Exactly.
Speaker Change: Thank you. The next question comes from the line of Adam Kramer from Morgan Stanley. Please go ahead.
Adam Kramer: Hey, guys. Thanks for the time.
Adam Kramer: Basketball, Washington D C fundamentals and important market for you guys like it is for some of the peers. So I know it kind of seems like everything is still kind of performing well there, but obviously headlines in the news.
Adam Kramer: A little bit more negative. So I'm. Just wondering you know what are you seeing kind of latest real time on the ground there and.
Adam Kramer: Maybe in particular on the return to office trends what are you seeing there and if you could kind of.
Scribe what inning, we may be in on the kind of return to office.
Adam Kramer: For demand I think that'd be helpful too.
Rick Anderson: Sure Adam I'll kick it off maybe start with a few points here D. C is about 15% of our NOI. We are 40%, 50% suburban we had a great quarter team did a really good job. We had four 9% revenue growth occupancy was 97, 7% and I think I've met.
Rick Anderson: And earlier are blends were three 5% during the quarter and in April we actually increased that to about 4%. So that looks good occupancy today is still above 97%.
Rick Anderson: Feels pretty good for on some of the main blocking tackling stats. If you will that being said, we do watch a lot of different leading indicators just to make sure that the market still feels healthy. Some of those include canceled denials notices gifts Hum are.
Rick Anderson: Our vacant days are trending traffic concessions I would tell you for the most part they still look really good.
Rick Anderson: From a year over year standpoint within that MSA as well about how it compares to the rest of our portfolio. So D. C is one that's been strong to start the year of one that we're watching very closely and again, we will pivot as necessary as we kind of go through the year like we do with all of our properties in all of our markets and so right now it feels good.
Rick Anderson: Good in terms of innings and return to the office, we are seeing a little bit more of that I think that's definitely helped us out to some degree to allow us to drive those plans at around 4% today, allowing us to keep our occupancy above 97% and right now concessions across that MSA or right around one to one five week. So.
Rick Anderson: The return to office is definitely helping out.
Rick Anderson: Help mitigate anything we're seeing on job loss things of that nature. So right now <unk> still strong.
Rick Anderson: I think beverages to other stats, what we were talking about previously it was on that return to office space. You are seeing ridership on public transit up double digits relative to where we were recently and so youre seeing clearly that start to develop on the ground in terms of the actual metrics and the other thing that everybody pretty worked up with jobless claims activity back in kind of <unk>.
Rick Anderson: And in March in D. C, you've actually seen that come right back down to a pretty normalized level.
Rick Anderson: Pre dose type of level and so we're not seeing continued elevation of jobless claims activity here in the last 30 plus days, so that wave is potentially behind us.
Rick Anderson: Great. Thanks for the time.
Rick Anderson: Thank you.
Next question comes from the line of Julian <unk> from Goldman Sachs. Please go ahead.
Speaker Change: Yeah. Thank you for taking my question.
Just wondering what your latest thoughts are on the Boston market. It sounds like it's been one of your markets have outperformed your initial expectations, but I guess like incrementally from here. How do you think about the risks from University and research funding freezes and cuts the headlines continue to be out there about biotech softness.
Just any details you can give us.
Speaker Change: Sure Good question.
Speaker Change: So I think it's always good to frame that market. This is a relatively large one for us a 11, 3% of our NOI, 30% urban 70% suburban.
Speaker Change: It has started better than we thought.
Speaker Change: The leading markets or Submarkets in Boston today starts with Northshore, followed by the South shore, and then a little bit more weakness downtown.
Speaker Change: Our expectations and you can see in some of the supply numbers the north shore should start to see a little bit more supply as we maneuver through the year and so while it started off very strong we do expect that this one will slow down a little bit throughout the year that being said really happy with that four 6% revenue growth we had in.
Speaker Change: The first quarter and it feels good today, so we're going to continue to lean in and drive our rents ideally run in that 97% range and today concessions are relatively flat to maybe half a week. So Boston is good I.
Speaker Change: I do think to Julian just as you look at all of that biotech noise or life science noise. When you look at composition of employment within the MSA, It's only about three or 4% of total employment within the MSA. In addition, when you look at the supply side.
Speaker Change: While Boston has a little bit elevated this year Boston is one of the better forward markets from a supply perspective, when you look at permitting activity and so we think we're going into a Ford environment, where you have less supply you still have relative affordability very much in retro should favor and while there's a lot of noise in headlines around life science. It is a small.
Speaker Change: A component of a pretty diversified and high income and high educated job base there.
Speaker Change: Okay, great. Thank you and then maybe from from your vantage point, having a more even balance of coastal and sunbelt exposure. If the macro were to deteriorate from here and we were to head into a downturn I guess, which of your regions between East Coast West Coast and Sunbelt would be most.
Speaker Change: Resilient this time around you think.
Speaker Change: Yeah, I think it depends a little bit on the driver of that demand fallout, so where does that come from because we've seen the GSE more of the finance oriented as well as the mortgage oriented industries take a hit which had an impact.
Plus a lot of Sunbelt markets, California, we say in the tech wreck Heaven, and nor Cal focus and so I think it depends a little bit on where the demand destruction in that environment could come from I think the good thing is as we go into a lower supply environment and lower affordability.
Speaker Change: You still have an outsized capture for our renter ship.
Speaker Change: But if you look at historical volatility.
Speaker Change: Markets like D C Boston, Richmond, Baltimore, Philly traditionally less volatile markets same as you get into the sunbelt, what's kind of the orlando's in Dallas has been a little bit less volatile and not.
Speaker Change: Normally you have a little bit less volatility in southern California relative to northern California.
Speaker Change: You can look a little bit of that as a proxy and I think that's why we love our diversified portfolio.
Speaker Change: <unk> balanced no matter, what the cause of that recession, maybe I think it will be relatively insulated versus peers.
Speaker Change: Okay, great. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of <unk> Chan from Green Street. Please go ahead.
Speaker Change: Hey, Thanks for your time.
Speaker Change: Just back over to the first quarter results can you discuss what it is.
Speaker Change: Are there any unusual sequential drag from fee income or bad debt or are there any shares in the first quarter that should normalize later in the year.
Speaker Change: Really nothing from a operational perspective, it was a pretty clean quarter. When it comes to same store NOI I think the two things that from a <unk> level held us back a little bit one was just some timing on G&A, which we expect to normalize as we go through the rest of the year. So we still feel good about the guidance level for G&A, There's just a.
Speaker Change: <unk> elevated for a couple of reasons there in the first quarter and then the other piece I mentioned earlier the buyout of 1300, Paramount alone that DPA, a senior loan that we purchased.
Speaker Change: Did not accrue during the quarter related to that but we did have the funding cost related to the buyout. So those two things were somewhat timing oriented that normalize going forward and help us on a sequential pick up <unk> <unk> and <unk>.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: I'm not sure I'm out could you.
Speaker Change: Or does the debt service coverage stand today.
Speaker Change: As well as the <unk>.
Speaker Change: Total loan to value on the property.
Speaker Change: Yes, so since we took a reserve back in fourth quarter, we reserved down to $183 million, which is what we felt in third party appraisers felt was the appropriate value for that asset at the time and so that effectively took our position to 100% Levered since we took a reserve.
Speaker Change: Debt service coverage is kind of irrelevant now because we have it on non accrual status.
Speaker Change: I can tell you is that if you look at a roughly 4% forward return on $183 million Youre looking at kind of $6 million to $7 million afford NOI and then more upside from there as we get it from kind of mid eighty's occupied up into a higher number on a forward basis plus get some initiatives in place. So I think thats more of the number of folks.
Speaker Change: Honest NOI contribution going forward, which.
Speaker Change: Which would be roughly.
Speaker Change: $2 million a quarter.
Speaker Change: Thank you.
Speaker Change: Okay.
Thank you. The next question comes from the line of Alex Kim from Zelman and Associates. Please go ahead.
Speaker Change: Hey, guys. Thanks for taking my question a lot of ground covered in this call, but just wanted to go back to something that Ed mentioned on bad debt. It seems like it trended in line and mentioned earlier in the call that it's trending towards that pre Covid average. So just curious on kind of the AI screening program.
Speaker Change: For bad debt is that resulted in any incremental improvement that you've seen thus far is that.
Speaker Change: Hum.
Speaker Change: Anything I guess related to that program would be helpful.
Yeah.
Speaker Change: Yes, I'll take that I think theres, a few things there not just the highest verification, but it's also a proof of income that we've rolled out pretty much across the board at this point, we're seeing it help with our bad debt, obviously lower write offs, but maybe a few other things I would point to is when we think about the people coming to the door and we're looking at credit scores Costar.
Speaker Change: <unk>, even the average deposits were seeing better results. If you will so as it relates to average deposits. Our deposits are up 17% on those individuals that are coming through the door and so if they become a riskier tenant we do have more money in the bank and then as far as co signers were up around 1% so about 10.
Speaker Change: Percent of our applications have a cosigner and our credit scores were up 20 points, so well at around 730 versus right around 710 previously overall, starting to pay dividends and again, we've rolled it out across the portfolio and we expect it to continue to work well for us as we maneuver through the leasing season, if you will.
Speaker Change: And Alex This is Joe just a little bit on the results from a bad debt perspective in the quarter plus go forward potential so you'll see on attachment three that we do have our net bad debt reserve continuing to decline and so we're seeing a good trend on that front, we're seeing a continued to come down we're also seeing fewer of the.
Speaker Change: Large balance long term delinquents.
Speaker Change: And more success trying to get individuals out a little bit sooner, we still have a lot of delays in terms of court processes and eviction timelines, but.
Speaker Change: But on the margin getting a little bit better on that front, and then that trend of pre COVID-19.
Speaker Change: Right now.
Speaker Change: Basis points of net bad debt expense pre COVID-19, probably 40 or 50 basis points. So we still think there's a huge opportunity here as we rollout some of these AI platforms from a screening perspective, Mike talked about that incremental 50 bps is worth, yes, plus or minus another $9 million on topline, but then all the other implications to expense.
Speaker Change: <unk> and turn costs occupancy et cetera is another probably $9 million. So just to get back to pre Covid you still have another $15 million to $20 million of bottom line cash flow opportunity. So we are laser focused on making sure we get those rollouts done making sure we get the right residents into our communities.
Speaker Change: Got it that's helpful right that those kind of tangential effects are something that I feel like a lot of people are missing as well.
Speaker Change: Okay.
Speaker Change: All for me thanks for taking the time.
Speaker Change: Thank you. Thank you.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, as there are no further questions I will now hand, the conference over to Tom Toomey.
Speaker Change: And seal of UDR.
Tom Toomey: It's closing comments. Please go ahead.
Tom Toomey: Thank you operator, and thank you for all of you for your time interest and support of UDR. We look forward to seeing you in many of the upcoming events and so with that take care.
Tom Toomey: Thank you.
Speaker Change: Ladies and gentlemen, the conference of UDR, Inc. Has now concluded. Thank you for your participation you may now disconnect your line.
Tom Toomey: Okay.
Tom Toomey: [music].
Tom Toomey: Yeah.
Tom Toomey: [music].
Tom Toomey: Okay.
Tom Toomey: Yeah.