UDR Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 27, 2022

There are 14 speakers on the call.

Operator

Greetings, and welcome to UDR's First Quarter 2022 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Senior Director of Investor Relations, Trent Trujillo.

Operator

Thank you, Mr. Trujillo. You may begin.

Speaker 1

Welcome to UDR's quarterly financial results conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website, ir. Udr.com. In the supplement, we have reconciled all non GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. Statements made during this call, which are not historical, may constitute forward looking statements.

Speaker 1

Although we believe the Expectations reflected in any forward looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward looking statements. When we get to the question and answer portion, we ask that you be respectful of everyone's time Management will be available after the call for your questions that did not get answered during the Q and A session today. I will now turn the call over to UDR's Chairman and CEO, Tom Toomey.

Speaker 2

Thank you, Trent, and welcome to UDR's Q1 2022 Conference Call. Presenting on the call with me today are Senior Vice President of Operations, Mike Lacey And Chief Financial Officer, Joe Fisher, who will discuss our results. Senior Officers, Andrew Kanter And Chris Van Enns will also be available during the Q and A portion of the call. Let me start off By saying this remains the strongest operating environment that I or any of my fellow associates at UDR have ever encountered. Demand remains robust.

Speaker 2

Turnover continues to decline. Blended lease rate growth has continued to accelerate From already elevated levels and new supply growth remains relatively stable. These factors when combined with the accretion We are seeing from our repeatable operating and capital allocation competitive advantages drove our strong first quarter results And full year guidance raises as outlined in yesterday's earnings release. We as an industry do continue to face a variety of challenges, many of which are out of our control. First, inflation.

Speaker 2

On balance, inflation is a net positive as wage increases correlate to rent growth And rising hard costs mean higher replacement cost and increased asset values. The downside is higher personnel and repair and maintenance costs, G and A increases to attract and retain associates and rising interest rates. We have effectively mitigated These negative factors through: 1, our platform efforts that constrain controllable expense growth below inflationary levels and 2, proactive debt management whereby over the past 3 years, We have increased our duration and have minimal debt maturities prior to 2025. 2nd, ongoing regulatory restrictions, elongated grace periods once restrictions are removed And Backlog Court Systems continue to hamper our ability to efficiently run our business. The current environment is decidedly better than in 2020, 2021 and while our ultimate collections rate have been between 98% to 98.5%, This is over 100 basis points below our pre COVID levels.

Speaker 2

And last, how current geopolitical risk May ultimately impact the U. S. Economy and consumer remains to be seen. Given this, at UDR, we continue to focus on what we do control, which includes, 1st, utilizing Operating and capital allocation competitive advantages when opportunities present themselves. These unique capabilities drive our top and bottom line growth And enhance our sizable controllable operating margin advantages versus public and private peers.

Speaker 2

2nd, continually innovating to find the most profitable and efficient ways to conduct our business that are wins for our associates, the company, Our residents and our stakeholders and third, ensuring that we continue to cultivate and enhance our already vibrant, Inclusive and engaging culture as it is and will remain the cornerstone of our success. All in all, I'm excited as I've ever been about our prospects for 2022 and 2023. To all associates listening, keep up the great work and know that the senior management deeply values Let your continue to accomplish. Moving on, we continue to build on our position As a recognized global leader in ESG with our commitment to investing in multiple climate tech and ESG focused funds, These investments should help identify both in the apartment home and property wide solutions to better address climate change And lower our carbon footprint. Similarly, our commitment to adopt SBTI this year along with extensive Company wide resources we already dedicated to enhance our sustainability will help to further refine our long term In closing, we remain very optimistic on the strength of the multifamily industry As well as the ultimate resiliency of the American economy and consumer, we have the right strategy, Competitive advantages and a team in place to capitalize on the opportunities set that lies ahead of us.

Speaker 2

I look forward to when we can share another update with you, and that most likely will be at NAREIT. And with that, I will turn it over to Mike.

Speaker 3

Thanks, Don. To begin, strong same store cash revenue growth of 10.8% Top the range of 10% to 10.5% we provided in early March. Key components of this result And our year over year same store cash NOI growth of 14% included: 1st, quarterly effective blended lease rate growth of over 14%. Our blended growth accelerated each month during the quarter was 240 basis points higher than what we achieved During the Q4 and benefited from minimal concessions granted. 2nd, weighted average occupancy held strong at 97.3 100 basis points higher than a year ago.

Speaker 3

And 3rd, annualized turnover was only 34%, Decreasing by 5.30 basis points versus a year ago and 5.70 basis points below our historical first quarter turnover rate. These favorable trends have continued into the 2nd quarter. Blended lease rate growth has Continued to accelerate to 16% to 17% in April, with new lease growth of more than 18% and renewals of better than 15%. This is driven by robust widespread demand and our ongoing ability to capture our in place 10% to 11% portfolio average loss to lease. Occupancy shows no signs of deterioration as alternative housing options like single family rentals and for sale homes have become even less affordable versus multifamily.

Speaker 3

Based on current rents versus the cost of homeownership, it is 45% less expensive versus 35% pre COVID to rent and own across UDR markets. And turnover remains light in April thus far. All else being equal, we expect 2nd quarter blended lease rate growth to range between 15% 18%, Occupancy to average 97% to 97.3% and annualized turnover to remain well below prior year levels due to a combination of higher demand and our continued focus on the resident experience. These trends combined with the fact that we now have Good visibility on 65% to 70% of our full year rent roll gave us the confidence to meaningfully increase our full year 2022 same store revenue and NOI guidance ranges. We now expect to achieve midpoint growth of 9.75 percent for same store revenue and 12.5% For same store NOI on a straight line basis, relative to our prior full year 2022 outlook, the drivers of our improved guidance ranges are as follows.

Speaker 3

1st, we expect full year effective blended lease rate growth of approximately 9% to 11%, which is 3% higher at the midpoint compared to our prior assumption. For the first half of twenty twenty two, we expect blended lease rate growth In the 15% to 16% range, implying a range of 4% to 6% in the second half. Across our portfolio and excluding the approximately 7% to 8% of NOI that remains subject to limits on renewal increases, We continue to see growth rates converge irrespective of market, location within a market or asset quality. 2nd, we continue to expect occupancy to remain relatively high and average 97.2% to 97.4% for a 10 basis point to 30 basis point improvement over full year 2021 results. And third, we still expect controllable expenses To be limited to 2% to 3%, this is 100 basis points below that of our overall same store expense growth guidance, which will increase by 50 basis points at the midpoint, primarily due to rising insurance costs.

Speaker 3

Our updated guidance continues to imply a second half slowdown in blended lease rate growth as we approach more difficult prior year comps And regulatory restrictions on renewal rate growth remain in certain markets. There is little at present suggesting a deterioration in multifamily fundamentals. So any upside to this expectation would have a modestly positive impact on 2022 results with the majority Accruing to 2023 via higher earn in as we move throughout this year. Based on current guidance, Our implied 2023 earn in would be in the low to mid 3% range or approximately 50 basis points to 100 basis points above our highest earning over the past decade. Moving on, collections continue to trend above 98% over time.

Speaker 3

And our 2022 guidance assumes we ultimately collect 98% to 98.5% of billed revenue. Our governmental affairs team continuously monitors the regulatory backdrop and works with our teams in the field to develop action plans that address Less than 1% of our residents remain long term delinquent. This proactive approach benefits residents, The company and our stakeholders. Finally, our ongoing innovation continues to bear fruit. To date, our 250 basis points controllable operating margin advantage versus peers at a similar rent level Has generated over $20,000,000 of incremental NOI on our legacy communities.

Speaker 3

In addition, our unique self-service model Combined with our other capital allocation competitive advantages and strong market growth has supported year 1 NOI that is 7% above initial expectations for our more than $1,500,000,000 of late 2020 And 21 third party acquisitions. This equates to a weighted average current yield of 5%, up from mid-4s at time of acquisition. Given our embedded loss to lease and favorable market rent trends, We see a path to achieving our original underwritten year 3 yields in the mid to high 5% range, roughly 1 year ahead of schedule. Looking ahead, we will continue to find ways that our ongoing innovation can beneficially impact Our bottom line as well as our residents experience with UDR. As we have spoken in the past, we believe improving the resident experience Increases retention, drives pricing power higher through pricing engine optimization, reduces controllable expense growth in the form of fewer vacant days and can lead to UDR assessing a larger portion of our residents' wallet through ancillary services.

Speaker 3

We remain confident in our ability to achieve our target of at least $20,000,000 of incremental run rate NOI over the next 24 months through these initiatives, while also progressing towards capturing much more over the long term. In closing, 2022 is off to an incredible start, which deserves a sincere thank you to all my colleagues for their hard work and innovative ideas that keep our company operating at a high level. And now, I'll turn over the call to Joe.

Speaker 4

Thank you, Mike. The topics I will cover today include our Q1 2022 results and our updated outlook for full year 2022, A summary of recent transactions and capital markets activity and a balance sheet and liquidity update. Our first quarter FFO was adjusted per share $0.55 achieved the high end of our previously provided guidance range and was supported by strong same store revenue growth And further accretion from our 2021 acquisitions. For the Q2, our FFOA per share guidance range is 0.55 to $0.57 or an approximately 2% sequential increase at the midpoint. This is supported by continued positive sequential same store NOI growth And accretion from recent capital allocation activities, partially offset by increased interest expense and higher G and A As we have enacted wage increases to better ensure employee retention at all levels.

Speaker 4

These same drivers led us to increase our full year 2022 FFOA And same store guidance ranges. We now anticipate full year FFOA per share of $2.25 to $2.31 The $2.28 midpoint represents a $0.02 or 1% increase versus our prior full year guidance And a 13.5% increase versus full year 2021. The increase versus prior 2022 guidance is driven by the following. A $0.04 benefit from improved NOI, offset by approximately $0.01 each from higher interest expense And increased G and A expense. For same store guidance, we have increased our full year revenue and NOI growth ranges on a straight line basis By 125 basis points and 150 basis points respectively to 9.0% to 10.5% At 11.5% to 13.5%.

Speaker 4

Due to lower realized and expected concessions for the rest of the year, We increased our full year same store revenue and NOI growth ranges on a cash basis by a higher amount of 175 basis points. This narrowed the prior 100 basis point delta between our cash and straight line same store revenue guidance ranges to 50 basis points. Additional guidance details, including sources and uses expectations are available on Attachments 14 and 15 D of our supplement. Next, transactions and capital markets update. After completing $1,500,000,000 of accretive acquisitions in 2021, Our Q1 external growth activity was primarily focused on DCP Investments and Development.

Speaker 4

First, During the quarter, 2 DCP investments were redeemed. UDR's investment in the projects totaled $58,000,000 For which we received life to date proceeds of $91,000,000 resulting in a weighted average IRR of 14%. We use a portion of the proceeds to fully fund a new $12,000,000 DCP investment with an 8.25% yield As part of the recapitalization of a stabilized community, we have a strong pipeline of DCP opportunities currently under evaluation. 2nd, we delivered initial apartment homes at 3 of our active developments, 1 each in Denver, Suburban Philadelphia and Suburban Dallas. The expected weighted average stabilized yield for these communities is approximately 7.2%.

Speaker 4

We also replenished and grew our development pipeline with 2 additional starts, 1 each in Tampa And Suburban Dallas at Vitruvian Park for a total budgeted cost of approximately $188,000,000 We believe both projects will be highly value add. Additionally, we are scheduled to close on the acquisition of a land site in Southeast Florida That is entitled for 300 plus apartment homes. 3rd, we commenced unit additions at 2,000 Post in San Francisco. We have experienced strong demand for our unit additions at 388 Beale in the same market and continue to evaluate similar opportunities across our portfolio. Across 3 active projects, we are adding 58 apartment homes with expected IRRs in the mid teens.

Speaker 4

Moving forward, we anticipate expanding our redevelopment and densification pipeline to take advantage of the ongoing strength we are seeing in the market. All told, we have a healthy and growing pipeline of DCP, land and development opportunities. We also continue to evaluate wholly owned acquisitions in target markets, utilizing our portfolio strategy and predictive analytics frameworks. To accretively match fund these future uses of capital, we entered into a $400,000,000 forward equity agreement during the quarter. Please refer to yesterday's release for additional details on recent transactions and capital markets activity.

Speaker 4

Moving on, during the quarter and subsequent to quarter end, we further enhanced our ESG leadership By committing to invest a total of $20,000,000 into several strategic ESG and Climate Technology funds. The investments within these funds are intended to be directed toward identifying in home, property wide and more general innovative real estate technologies intended to help UDR, our residents and others reduce our collective carbon footprint. Finally, our investment grade balance sheet remains liquid and fully capable of funding our capital needs. Some highlights include: First, we have only $290,000,000 of consolidated debt or just over 1% of enterprise value scheduled to mature through 2025 After excluding amounts on our credit facilities and our commercial paper program, our proactive approach to managing our balance sheet Has resulted in the best 3 year liquidity outlook in the sector and the lowest weighted average interest rate amongst the multifamily peer group at 2.8%. 2nd, as of March 31, our liquidity totaled $1,700,000,000 And provides us ample dry powder to continue to accretively grow the company as we identify opportunities.

Speaker 4

And last, our leverage metrics continue to improve. Debt to enterprise value was just 22% at quarter end, While net debt to EBITDA was 6.4 times, down from 7 times a year ago and remains on track for approximately 6 times by year end. Taken together, our balance sheet remains in excellent shape, our liquidity position is strong, our forward sources and uses remain balanced, And we continue to utilize a variety of capital allocation competitive advantages to create value. With that, I will open it up for Q and A. Operator?

Operator

At this time, we'll be conducting a question and answer A confirmation tone will indicate your line is in the question Our first question comes from the line of Nick Joseph with Citi. Please proceed with your question.

Speaker 5

Thanks. We've heard from some of your peers about delinquency and collection issues in Southern California specifically. I recognize there's Different submarket footprints and different kind of bad debt assumptions embedded in guidance. But just on the ground, what are you seeing in Southern California

Speaker 4

Hey, Nick, it's Joe. Similar to our peers that have kind of spoken to it in You are here a couple of hours ago. We are seeing something a little bit similar. We do have a decidedly lower exposure to Los Angeles, But our Orange County portfolio has seen similar trends. It does seem to be specific to Southern California, where we do have a little bit more of a B Quality portfolio and lower income portfolio in Northern California.

Speaker 4

So we saw AR balances tick up about $1,000,000 on a quarter over quarter basis. Some of that's due to typical seasonality. We usually do see January and February collections a little bit lower than trend. But we also saw applications for government assistance tick up about $1,000,000 as well on a quarter over quarter basis. So similar to what you heard, I think, out of EQR is I think there were a number of residents that Had been payers in the past that simply stopped paying and trying to take advantage here before government assistance funds expired here in the end of March.

Speaker 4

Today, here early in April, cautiously optimistic that we've kind of dug into it a little bit more that those individuals are reverting It's pain in some cases. So I think by the time we get out to June NAREIT, we'll have a little bit more commentary for you on the trends that we're seeing there.

Speaker 5

Thanks. That's very helpful. I think you talked about the commitments you made to the PropTech and climate related funds. How did you think about sizing those commitments? And then what are your financial?

Speaker 5

And I think you touched on some of the strategic goals, but what should investors expect out of those investments?

Speaker 4

Yes. I guess, if you go back over time and look at what we've tried to accomplish here with the first two RET funds, Of course, there's the financial and investment return that we expect to get out of the fund. But more importantly, the $1,500,000,000 of revenue, the $400,000,000 of expenses, The capital allocation and platform benefits, that's really what we've been focused on with the RAT funds and you've seen a number of examples of that throughout over the last couple of years. This is really an expansion of that. So when you look at the strategic fund, that $25,000,000 commitment, similar consortium of investors And limited partners there that are focused on a more permanent capital type of vehicle for big picture technologies that will benefit the entire industry.

Speaker 4

So I think along the lines of CRMs, ILSs, pricing engines, maintenance and pricing. Some of those type of items more on the strategic side. When it gets into the climate side, you can see that $10,000,000 commitment we made in the quarter. In addition, press release went out last Friday by RAT along with Essex and ourselves being the founding members of a housing impact fund, another $10,000,000 investment there. What we're really trying to do there is we've laid out our commitment to SBTI And our plan is to move forward with that and advance our industry leading ESG efforts that we already have in place.

Speaker 4

This allows us to just get more focused on that. So Looking at in home tech, outside of home tech, and really having experts that we can tap into on a daily basis that Give us access to a lot of the different types of technologies that are going to impact ESG on a go forward basis and our carbon footprint on a go forward basis. So That's really what we're focused on, on those.

Speaker 5

Thank you.

Operator

Our next question is from Steve Sakwa with Evercore. Please proceed with your question.

Speaker 6

Thanks. I guess, still good morning out there. I just want to circle back on Mike's comments about the blended growth. I think you said 15% to 16% in the first half, but 4% to 6 And I realize comps get a lot tougher and maybe concessions are playing a role where Concessions had really burned off maybe by the middle of the year. And so I guess what I'm really trying to get at is what is the underlying assumption about market rent growth Within your framework for this year and maybe how has that changed or what's the maybe potential upside to the guidance Numbers of market rent growth is faster than what you're currently expecting.

Speaker 3

Hey, Steve, it's Mike. I appreciate it. To your point, let me just back up a little bit. You're right. We did say around 14% blend in the Q1.

Speaker 3

We expect around 15% to 18% in the 2nd quarter. And when you look at that, we did provide 15% to 16% in the first half. That compares to a 10% to 11% we previously Guided to. And now we think that back half is around 4% to 6%, when previously it was around 4%. The way we look at it is Basically trending our market rents.

Speaker 3

So when you think about how it should play out over the next, call it, 6 to 9 months, we've looked at Previous pre COVID numbers and it was right around 2023. So it was right around 4% to 6%. And Again, we think that it's historical numbers. Steve, it should play out that way. We'll see how it ends up.

Speaker 3

But what I would tell you is 2020 2, it's going to make a minimal impact at this point if it's even 1% to cost 5% higher. It's really going to start playing out in 2023. And I made that point in my original remarks that it should be upwards of 3% earn in, which would be the highest I've seen in my 16 year career here at UDR.

Speaker 6

Right. And I realize I'm putting the cart before the horse or getting ahead of myself as you think about next year and full year numbers, But that earn in will obviously grow over time if these spreads that you're talking about sort of play out and unfold. I mean, how does the earn in typically change Sort of from this point forward, if all of your expectations get hit, does that earning typically double? Does that earning go up 50% From here, like how do we sort of think about the exit rate going into next year?

Speaker 3

It typically grows. It really depends on what happens in the Q3. So with the highest expiration period of time, what kind of growth and it's really on a gross basis, not an effective basis, What we get at that period of time will really start to impact what that earn is next year. So again, we're pretty optimistic that that 4% to 6%, It could trend higher. And if it does, that will lead to a higher earning next year.

Speaker 2

Hey, Steve. This is Toomey. I think one factor that's Making it hard to forecast is the record low turnover number that we're having right now. And as we come into Prime leasing season, does that tick up with these types of price increases? And we've seen no sign of that in our notices that we've sent out.

Speaker 2

And so that kind of points to the higher side of it, if you will. And if everybody else is having the same experience loan turnover, They have more confidence in raising that market rent number. And that's Mike just hedging his bets the right way, which is How much does he able to press gross rent with a low turnover number? And if this Turnover stage traffic has been extraordinarily strong. So I think that's partly technology.

Speaker 2

Nobody's moving And we feel pretty damn good about it. But as I think Mike started with, what's most important at This point in time with 65% of the revenue already figured out for 2022 is what's holding us back, How are we setting up 23? And 23 looks pretty damn strong right now.

Speaker 6

Great. Thanks. That's it for me.

Operator

Our next question is from Anthony Paolone with JPMorgan. Please proceed with your question.

Speaker 7

Yes, thanks. My first question relates to development. You picked up some land and you're starting some things. Can you talk about how you're underwriting rents from these levels as you think about delivering development in a couple of years and also OpEx And where cash on cash return hurdles need to be in the face of just higher inflation, financing costs, etcetera?

Speaker 4

Yes. Hey, Tony, good to hear from you. Maybe start with current development pipeline, because I do want to mention what's going on there. So We did add a couple of new starts here in the quarter. So taking that pipeline up to around $700,000,000 If you kind of bifurcate that into 2 groups, As you look at the lease up deals are going fantastically well.

Speaker 4

They're kind of mid to high 6s stabilized yields at this point, so pretty great performance on those. The newer starts Kind of turning towards the higher fives, low 6s, so pretty consistent with where we've historically been. But importantly, on your question around Cost and inflation, majority of those costs on that $700,000,000 pipeline are fully bought out at this point. I think we only have about $10,000,000 of hard costs that remain to be bought out, and we're carrying a contingency in the high single digits for that one. So see minimal risk From a cost perspective standpoint on those, if you think about what we have coming up in terms of new lands, We bought a or in the process of a parcel in Fort Lauderdale.

Speaker 4

We've also got a number of opportunities that we kind of Started to allude to with the equity raise and some of the upcoming uses of capital, but we've got Southern California, Inland Empire, Denver, DC as well as Dallas. And so we've got a pretty robust pipeline we're working through on the land side. What I'd say is near term, Definitely underwriting above inflationary type of cost increases. We have seen pretty substantial cost increases over the last 12 months. A lot of that on the hard cost side and a lot of that driven by labor and some of those hotter Sunbelt markets, if you will.

Speaker 4

But from a yield standpoint, We're still pretty close to where we've historically been. Current yields kind of 5.25 ish and on a stabilized basis, Kind of high fives, 5.75%, 6% ish percent. So when you think about the value creation margin, still commensurate with what we've talked about historically when you look at a Yes, 3.5 to 4 cap type of market. We're still looking at 150 basis points to 200 basis points of margin or value creation, which It's in line with history. So we got a little bit juicy there for a while when cap rates compressed and yields held up, but now we're back to normalcy.

Speaker 7

Okay. That's really helpful. And to get into those 5s yields going in, Do you have to do much with rents compared to where they are today?

Speaker 4

Yes. So 5.25 percent, the way we look at it On a current trended basis, it's a current rent in the market for what that asset would attain today relative to a trended cost basis. And so having an above inflationary cost trend on that, so that gets you to 5.25%. If we keep those costs where they're at And as we go through development and lease up and get to stabilization, we'd expect those rents to grow at kind of long term averages of plus or minus 3%. That gets you to roughly 5.75.

Speaker 7

Okay, great. Thanks for that. And then I'll just stick with you for just one second question. The bad debts, did you have a number for the Q1? I may have missed it, just on a percentage basis, I guess, net of any reversals or the government stuff?

Speaker 7

I didn't catch that. Yes.

Speaker 4

So what we effectively had when you looked at the combination of write offs plus reserves, We've been able to go back over time throughout the last couple of years and collections over time typically get to plus or minus 98.3% in this environment. And so you can think about a net bad debt number of 1.7% between a combination of write offs in the quarter And incremental reserves, if there are any to that extent. When you look at our bad debt versus reserves in the quarter, Accounts receivable was just over $24,000,000 about $1,000,000 quarter over quarter increase. The reserve against that came down slightly to roughly $12,000,000 so about 50% reserved. The reason it came down was We continue to have better and better history over time of getting to that 98 plus percent number over time.

Speaker 4

The other way I'd kind of think about it is you have $12,000,000 of Unreserved risk. So the way we get comfortable with that is if you look at 3 different buckets, we've got about $11,000,000 out there in government assistance applications, Which we believe are close to money good over time. There's just delays within those processes. You have another $7,000,000 of partial payers over time. So those are individuals that have demonstrated a willingness and ability to try to make good on their rental payments, but sometimes it just takes them longer than normal.

Speaker 4

And so we think over time, those will start to come in, maybe not to the 100% degree, but definitely some of those will come in. And then you have about $6,000,000 of long term delinquents, which Are the residents that despite all of our efforts to work with them on government assistance, on payment plans, on relocation options, things of that nature, They have really settled in. And so those are the individuals that we're trying to continue to work with. But if they choose not to, then those are the ones that we'll be going to court with

Speaker 2

Tony, just to add, this is Toomey. I think the bad debt, this whole System we've been through over the last couple of years, the team has done an exceptional job of getting out in front with the government aid, Getting in front of our residents, understanding where the situation is, work with the people we can work with and for the ones that To be a little French squatting on us,

Speaker 5

the court systems are starting

Speaker 2

to open and they see that piece of the equation. So I think as the year goes by, if it gets back, if it's 98, 98.5 Collection type process, I'm not sure we'll get back to our pre COVID window of 99.5. I think it's just going to be challenging With some of these municipalities to get there. So if I'm thinking about 23, I think we're generally running at our mind at 98.5 next year With the hope that we get 50 bps above that. And that will be next year.

Speaker 2

This year, I think the story is just not over and it's just grinded out.

Speaker 7

Okay. That's helpful. Thanks for the 23 look there.

Operator

Our next question is from Nick Yulico with Scotiabank. Please proceed with your question.

Speaker 8

Hi, everyone. Thanks. In terms of the guidance, First question is just on interest expense that going up. Joe, maybe you could talk about what drove that higher? Yes.

Speaker 4

Hey, Nick. It really has to do with the floating rate side of the equation. So we've done a pretty exceptional job over the last 2 to 3 years, Going after our maturity profile, doing the long 3 days, lower cost debt down in the 2% to 2.5% range versus the kind of low So we've done a great job on that front. So it doesn't have to do with anything that we had planned in terms of new issuance or refi activity. It's all floating rate oriented.

Speaker 4

And so we've got about $400,000,000 plus or minus of floating out there, call it 6% to 7% of total debt stack. And so as the curve is obviously ticked higher here to start the year with Fed rate hike expectations, we just updated for where the curve is expected to be. So they had about $2,500,000 or 0.06 to 0.07 dollars impact on the outlook here.

Speaker 8

Okay, got it. And then I guess as we think about there's some moving parts for the rest of the year in terms of you may raise debt or you may No, right. I think you have that guidance range of $0,000,000 to $250,000,000 of debt issuances. You have that swap expiring on a piece of the term loan, Commercial paper rates presumably going up. I guess maybe for those pieces, if you could just give a feel for if that's already factored into guidance or if there's Also a chance that maybe interest expense could creep higher than guidance because of some of those issues?

Speaker 4

Yes. I feel pretty good now at this point in terms of where we're at. We have a little bit of cushion in there most likely if we got another 25 basis points or 50 basis point raise beyond Current expectations, the term loan and the swap associated with that is definitely in there. You did mention we do have the term loan 50% of that turned out for a couple of more years at a fairly low rate, so that is locked in. The swing factor on debt is simply going to be, Do we have that equity deployed?

Speaker 4

And do we ultimately lever some of that equity given the capacity that we're creating here? Right now, that's up for discussion Given that additional debt issuance isn't necessarily accretive in this environment, and so we've accounted for a potential range there in terms of $0,000,000 to 250,000,000 But not necessarily certain that we'll act on it. We're going to evaluate the environment as we go forward later in the year.

Speaker 8

Okay, very helpful. Thanks, Joe.

Operator

Our next question is from Brad Heffern with RBC Capital Markets. Please proceed with your question.

Speaker 5

Yes. Hi, everyone. Obviously, you took up the acquisition guidance this quarter without anything actually getting done in the Q1. Can you talk about the pipeline and also your thoughts on your expectations for accretion, just given the negative leverage environment?

Speaker 4

Yes. Hey, Brad, it's Joe. So,

Speaker 2

yes,

Speaker 4

I think stepping back a little bit, we did do the equity here in the Q1 towards the end of the quarter, $400,000,000 at just about $57,000,000 $57,000,000 net. And so what we saw at that point in time was an increasing opportunity across All of our value creation arms between developer capital program, re dev, development and acquisitions. So after kind of 6 months of No equity issuance, de minimis external growth, where we sat back and really just couldn't find opportunities that fit with what we were trying to do from Platform perspective and an accretion perspective, we are starting to see more of those opportunities today. So we felt that it was the right time to do the equity. As I took across to each of those, Within the developer capital program, we did announce a recap transaction there in the quarter.

Speaker 4

But beyond that, we do have a plus or minus $100,000,000 pipeline Of opportunities there that we think will get some or hopefully all done over the next 12 months. And so we do feel very good about continued Deployment on the DCP side. On development side, we mentioned the Fort Lauderdale Land acquisition And in the prior question, you mentioned, we've got 100 plus 1,000,000 of other land sites that we're working through various points in the process on. And so that will add to the uses as Well, forward uses and capacity there. And then on the acquisition side, we've got a deal tied up in suburban Boston right now that It's in the low 4s forward cap rate range that checks a lot of the boxes that we've talked about previously in terms of the operational aside the platform efficiencies, the capital expenditure programs, etcetera.

Speaker 4

And so between all of those, you've already got Plus or minus $400,000,000 of identified uses. And so that will use another several $100,000,000 there that we'd hope to utilize for acquisitions as Yes, the market continues to come our way.

Speaker 5

Okay, got it. And has there been any Noticeable change in competition as you're looking at new acquisitions.

Speaker 9

Hey, this is Andrew. I just was out at ULI and which provides great market check out in San Diego. And what I can report back to you is that there's a very active market that we're participating in. There's a continued wall of capital looking to increase their exposure to apartments. Listings on new deals is not diminishing.

Speaker 9

In fact, there's a record number of deals year to date. It's up about 60% over 2021. And as we know, there's continued great fundamentals. What we're starting to see as it relates to the pricing side is that it really varies based on location and asset Quality and buyer type. Buyers are being a bit more patient and looking to be opportunistic with pricing retrades And sellers are seeing thinner buyer pools due to the abundance of options available in the market.

Speaker 9

This has impacted the sellers' ability to push pricing after initial bids been received. Movement in interest rates is clearly the largest driver that's impacting pricing and therefore levered buyers are seeing more of an impact on pricing. Unlevered buyers and low levered buyers are still very vibrant in the market. In our markets, we're seeing the market, as Joe mentioned, come to us. We're seeing Pricing flat to down as

Speaker 2

much as

Speaker 9

10%. Although as always, it depends on the property and the market. We're seeing the biggest changes In assets that have run the most in pricing recently and those that are attracting buyers that are using the highest leverage points, On average, cap rates compressed roughly 100 basis points over the last year to kind of that 3.25% to 3.75% range As buyers were able to underwrite and capture the significant mark to market in the rent rolls, today we're seeing cap rates closer to 3.5% to 4% and a little bit higher. Markets like San Francisco and New York haven't been as impacted as they continue to have runway of rent growth communities in the Sunbelt that have already benefited from significant rental increases in the run rate over the last several quarters. And what I'd It's important to remember that although pricing has recently moved, like I said, flat to slightly Over almost all assets across our markets and across the country have seen a rapid increase in pricing.

Speaker 9

And even today with those pricing changes Are still more valuable than they were 8 to 10 months ago.

Speaker 5

Got it. Thank you.

Operator

Our next question is from Austin Wurschmidt with KeyBanc. Please proceed with your question.

Speaker 10

Yes. Thanks, guys. So on the last call, you guys talked about entering 2023 with a mid to high single digit loss to lease. And I was just curious if the updated Guidance assume that you recapture some of that loss to lease. And so you'll be entering next year, I guess, at a lower loss

Speaker 3

Yes, Austin, it's Mike, we actually still think we're in that range as of right now because with the updated guidance in that back half, we do think market rents are Slightly higher than what we provided last quarter. So that will help with that loss release as we enter next year.

Speaker 10

Got it. And then I was just curious if you could talk about where you guys are seeing construction pick up. I mean yourselves and a number of others had started to pick up a little bit on the development But when you look across all your markets, where do you see that picking up the quickest? And at what point do you think you start to see supply pick up in any meaningful fashion that it could Maybe I hinder your ability to drive it?

Speaker 4

Yes. Hey, Austin, it's Joe. And I think near term, Feel very good about the supply picture in terms of it's remained relatively constrained. This year in our markets and submarkets were up by 10% to 20%, but that's Only about 1.7%, 1.8%, 1.9% of stock. So very, very manageable level, especially given the level of demand that we're seeing out there.

Speaker 4

So no real concerns near term. There's obviously some markets that as a percentage of stock or year over year growth are a bit more concerning. So A couple of the Sunbelt markets have a percentage of stock up in the 5%, 6%, 7% range. Some of our coastal markets have a little bit of a Residual impact like New York or Seattle that still have some supply coming through from kind of pre COVID starts. But I think that starts to dissipate when you look at the coast On a go forward basis next year.

Speaker 4

So permits obviously dropped off quite a bit during the downturn in the coastal markets as capital continued to flow into Sunbelt and Development dollars and permits were flowing into Sunbelt. So, you could start to see more pressure in the Sunbelt. I think permit wise, they're still up 40% versus pre COVID. So you'll probably see some pressure there coming. Markets like Raleigh and Atlanta and Charlotte that we're not in as well as probably Austin and Nashville Continue to see some supply pressures, but balanced with really good demographic and population growth, and they're finally seeing income growth there, which Haven't seen over time, so hopefully ability to absorb some of that supply.

Speaker 4

But generally speaking, supply is pretty well constrained at this point in time.

Speaker 2

Hey, Austin, Tuni. I think Joe did a great job of running down the markets. A couple of things to really weigh Is housing as an industry. And you've seen it most recently in the single family side, Where the overall demand for household formation is about 4,000,000 annually and we're still producing about 2. But single family has taken a little bit of a hit lately with the rate increases, the price run ups.

Speaker 2

And so that always pushes people or keeps them in their apartments And honestly, I'm not overly worried about the supply equation, given that single family probably has to Take a pause, if not retreat, and that's going to give us at least through a strong 2022 head into 2023, Again, another wind at our back that looks favorable for us. So and with the difficulty in trying to build in this climate, It's going to slow down that supply equation. So I think it's all going to translate into a pause on the supply side, Not an acceleration. We'll work our butts off to try to keep it at this level. That's going to translate to pricing power on Mike's side of the Racial equation, so feel really good about that part of the business.

Speaker 2

And that demand side, we're seeing Strong demand. I mean, strong would be polite, extraordinarily strong demand across all of our markets still.

Speaker 10

Thanks for all the detail.

Operator

Our next question is from Rich Hill with Morgan Stanley.

Speaker 11

Hey, good afternoon, guys. I want to come back to this question about or this topic about earnings. And the reason I focus on it just because there's a lot of focus on rate of change. So I think the comment that you're making is really important. I just want to make sure I understand it and I'm unpacking Correctly.

Speaker 11

I think what you're suggesting is, while the rate of change might begin to decelerate, Rents are still rising in absolute terms and that creates embedded growth in 2023 as a starting place of around 3% and then you have growth on top of that based upon wherever you can take occupancies and leasing spreads. Is that the right way of thinking about it? And hopefully, I'm not asking a painfully Naive and dumb question, but if you can just help me unpack it a little bit more that would be helpful.

Speaker 3

No, Rich. I think you just nailed it right on the head. That's the way we think about it. And as we think about that back half again, a lot of that is going to be gross rents. So when we entered this year, Back half of last year, it was mainly effective.

Speaker 3

And a lot of that was a burn off of concessions. But as we move forward, we're going to continue to see these market rents Right now compared to what we've historically experienced at this time of year. And so as you have that and you go into some of those higher LEM periods of time, That's going to start building up your 2023 as well as help you out a little bit in the back half of twenty twenty two.

Speaker 11

Yes, I understand. It's an earnings power statement, which Makes a ton of sense. Can I ask one follow-up question on renewal spreads? Your renewal spreads are super impressive, especially in April. Maybe walk us through why you're able to push those renewals as much as you can.

Speaker 11

I suspect some of it has to do with the record low turnover And tenants just willing to accept a renewal as a burden hands better than 2 in a bush. Can you just walk through that dynamic and what you're hearing with negotiations?

Speaker 4

It's a really

Speaker 3

good question. Again, you hit it right on the head. What we're experiencing is with these market rents rising the way that they have been, and we really pushed coming out of the gate in January, February. That allowed us to push aggressively on our renewals because on the new side of the equation as well on the market rents, They were supporting those growth rates. So as we've gone out there and we said a couple of months ago, we are going to be setting out in that 14% to 15% range.

Speaker 3

Thankfully, market rents continue to move the way they were going, and it allowed us to not to negotiate with a lot of our residents because frankly, the markets have been increasing at So you have that I will tell you, you do have low turnover, which continues to support that. As we move forward, we're definitely anniversarying off Some higher numbers, especially as it relates to Sunbelt. So we'll have to see how that plays out. But right now, we're still sending out anywhere from 14% to 15% Through July at this point.

Speaker 4

Hey, Rich, it's Joe. Just to follow-up on that, because while there's a lot of either Cyclical or structural dynamics here at play in terms of the record low turnover levels, the relative affordability and reasons to want to live in apartments, I do think it's important to not lose track of what it is that Mike and team are doing differently. And I know you were kind enough to host us in Chicago last December and spent a lot of time on the platform and what we're focused on, on customer experience. But I think it's starting to bear fruit as well in terms of the data that we're utilizing to understand Resident decisions, changing our actions and activities on a day to day basis, so that we can actually give them a better experience, Address issues that they may be having and ultimately change the outcomes for that resident and entice them to stay. It's not Just about rent and how much they're paying out of their pocket each month.

Speaker 4

It's about what the experience that they have with us. Do they like being there? Do they like the neighborhood? Do they like the people? And so We're doing a lot of work behind the scenes on that.

Speaker 4

And so there are some UDR specific factors that I think play into this in terms of that retention number.

Speaker 11

Yes. I think that's a really good point. And hopefully, Trent's relaying to you the number of PropTech investors that want to speak to UDR specifically on what you're doing different. So get ready for more of those.

Speaker 4

We're happy to help.

Speaker 11

All right, guys. Talk soon. Thank you.

Operator

Our next question is from John Pawlowski with Green Street. Please proceed with your question.

Speaker 12

Andrew, I wanted to come back to your comments on you're starting to see and your industry colleagues are starting to see pricing Flat to down 10%. Can you give us a sense for how broad based that is? Are these a small handful of deals Getting kicked to you or are you starting to see a broader trend?

Speaker 9

Yes. What we're starting to see more broadly is that the bar pools are Like I talked about, so when you're getting more you're seeing less of the pricing move above Get to the levels that we saw earlier in the year. In general, the best assets are still pricing flat to slightly up, But it's really those assets that are further out that benefited from the demand in the marketplace. So those are the ones, the ones that you were Looking at, but you aren't really paying as much attention to, are the ones we're seeing the larger price changes on. But the ones that we've been buying in the core assets have had a much smaller A number of reductions, they're much closer to the 0%.

Speaker 12

Okay. Makes sense. Then just a few final questions on revenue enhancing CapEx. And so, you guys in the last 7 to 10 years have been quite And just in terms of the revenue enhancing CapEx, stick it being open. Have you looked at now you have a very long time series of this spend.

Speaker 12

Have you looked at How kind of all in unlevered IRRs have compared to other alternatives out there, just buying Additional buildings. And so I'm just curious in terms of durability, this cash flow is different. Yes, you get a pop on year 1 rent, But how do like all in economics stand up versus alternatives?

Speaker 4

Yes. Hey, John, it's I'll say it depends. So you're going to have a broad range within the spectrum, right, in terms of if you do unit additions such as What we're doing on Attachment 10, and you have kind of that perpetual life infrastructure that you're putting in place, obviously, the cash on cash return that you need day 1 To achieve your cost of capital is much lower. The other end of spectrum and do shorter duration NOI or revenue enhancing CapEx. So a KMB program that may be a 8 to 12 year useful life, you're going to need a higher cash on cash return upfront to still get to We typically target, which is 150 basis points to 200 basis points above our cost of capital from an IRR perspective.

Speaker 4

And so We do a pretty active monitoring process throughout the year. Mike's team, all the deals that are approved to start the year, They're constantly killing off and canceling deals that aren't attaining the rent premiums that we initially underwrite. And then they'll bring new deals to the table As different markets move and we think we can get pricing power and upside on alternative investment options. So we try to be pretty disciplined around it. I'll say the challenge within that is always how does that premium pull up over time in year 8 or year 12 or year 15.

Speaker 4

There is a little bit of art, Not just science involved in all of this, but I do think we've got a pretty phenomenal track record on that front.

Speaker 12

Okay. Maybe we can talk more at NAREIT. Just final question for me. Given this has been very recurring at 7 straight years, you spent over $40,000,000 per year in revenue enhancing CapEx. At what point do you have to disclose that or include that in AFFO as recurring?

Speaker 4

I think the industry standard approach has been what's considered more the maintenance side. And so what's asset quality, what's turnover CapEx, that I would say is generally not something that we have discretion Those are dollars that you need to spend year in and year out. What we're doing from an NOI enhancing perspective is trying to Change that property, so hoping to take it from a B- to a B plus if you will. And so trying to upgrade the quality of that property, That's not something that we have to do year in and year out. We can, of course, choose to turn off that spigot.

Speaker 4

So I think our disclosures are pretty consistent with how the industry looks at it. That said, I know yourself and others as well as ourselves internally spend a lot of time looking at full CapEx loads and looking at those not just on a per unit, but as a percentage of basis, which I think is important. And so when we benchmark ourselves versus our public peers and where our portfolio should be, We do find that recurring plus NOI enhancing is right down the middle.

Speaker 2

Okay. Thank you.

Speaker 4

Thanks, John.

Operator

Our next question is from Neil Malkin with Capital One Securities. Please proceed with your question.

Speaker 13

Hi, everyone. Thanks. First one, just in terms of capital allocation. The Southeast Florida parcel, I don't think you have any investments there, assets there. Typically, you guys are more of a kind of cluster it, you use the synergies and scale of the market and the operations to get the maximum Profitability NOI.

Speaker 13

Is your plan to increase your presence into the Fort Lauderdale sort of Southeast market post the potential development. Thanks.

Speaker 4

Yes. Hey, Neil, it's Charles. So We do actually have one asset down there that we've had for a fairly extended period of time. It's a little bit buried in terms of Ability to see it on our typical market disclosures, we group that into the other market category. So if you go to Attachment 7A within the sup, you You can see we do have a Palm Beach asset there for 6 36 Homes.

Speaker 4

So we've had exposure there. It's a market that's between Broward and Palm. We've kept our eye on that market For a while, I've been trying to find opportunities. So the hope would be that we could continue to grow that exposure over time. Yes, we've liked that market for a while, just finally found an opportunity that worked for us.

Speaker 13

Okay. And then

Speaker 2

Let's see.

Speaker 13

Yes, other one for me is on SmartRent. I know that, obviously, they are a big part of your next gen ops platform. I'm just wondering, with the Sure. Share price performance, are you concerned about like them as a going concern entity? Just again, given that you rely very heavily On those on their software and platform to sort of run your business?

Speaker 13

Or are you confident in their liquidity and just not an issue?

Speaker 4

No. I would say at this point in time, absolutely no concerns from a going concern perspective. I know that their share price has come off from when they did the spec, And so that has impacted in terms of the mark to market on our investment there. I think the Valuation on our books today is roughly $55,000,000 or so off of a $5,000,000 investment. So when that gets March next quarter, it probably comes down a little bit more.

Speaker 4

From a going concern perspective, absolutely not. They've continued to perform for us, continued to do installs as we expect. So no operational concerns, no install concerns. The products work fantastically well for us across the board, not just on expense savings Efforts but also on self touring. So don't see any issues there.

Speaker 4

And when you look through their balance sheet from a Cash and liquidity perspective, no concerns there either. Obviously, they're just not immune to supply chain disruptions, which I think has Had an impact on valuation and multiple as has the drawdown in broader tech. So definitely don't think that's a going concern issue.

Speaker 5

Neil, this is Tony.

Speaker 2

That question only dovetails into risk management. And with any of our technology And we've always looked at it and said, if there's a hiccup, are we able to sustain our business model, Our interaction with our customer and I can assure you with respect to SparkRent, we work hand in hand with them On being able to sustain our business model should there be any disruption by a third party vendor in any part of our business. And so I think that's just good risk management. Everybody understands it in the industry and SmartRent is very cooperative. And then To emphasize on Joe's point about a going concern, we're not going to comment on other company's business, but what I will say that product It is industry leading and will only continue to grow in penetration and usage.

Speaker 2

And so when the supply chain aspects are solved, none of us know that. If you do, tell me. They're going to go right back to the races because their book of business is huge.

Speaker 13

Sure. Thank you, guys.

Operator

Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question.

Speaker 5

Hi, thanks for the time. Just a question on renewals and I guess affordability. Chris, I think you said in your prepared remarks that renewal growth should slow given some pressure across some markets. So maybe just hoping you could expand on that As well as comment on where renewals are being sent out for maybe June, I think you'd maybe have a sense for that or those have gone out. And just how affordability is at this point, given some of the precipitous increases we've seen in the blended in lease rates across the board?

Speaker 3

Hey, Juan, it's Mike. I'll take that. So just as it relates to the affordability piece, I'd tell you those rent to income ratios, something we watch very closely. They haven't really changed a whole lot with wage increases happening at the rate that they're across all of our markets. We feel pretty good about that.

Speaker 3

What I've mentioned with some of these renewal increases as we move forward, we are sending out again in that 14% to 15% range as a whole. But we are seeing some of the markets where you're seeing a little bit more pressure, a little bit more turnover as it relates to rent increases. And just to give you an example, you look at a place like Tampa for us, where we've had very strong rent growth, we're going on almost 2 years of pushing out Double digit renewal increases, we think that that's going to be a little bit more pressure as we go into 3Q, 4Q because that's when we started pushing so hard last year. And I'll tell you, when we get into some of this data, some of the big data that we have here, we are noticing that in a place like Tampa, Where we have longer tenured residents, they're moving out quicker than, say, some of the shorter tenured residents. And on the flip side, a place like New York for us, It's the opposite.

Speaker 3

So in New York, you have people that came in over the last year or so. They got a huge concession. You are seeing them move out At a higher rate than some of the people that have been with us for over 2 years, for example. So those are just some of the metrics we continuously watch, and we'll continue to watch them as we move forward. I think as we get into NAREIT, we'll have a lot more information on what's being sent out and what we're signing as we go into, call it, 3Q.

Speaker 4

I think too, Juan, just as you think about that affordability piece, Mike went through the rent to income, but thinking more broadly than just multifamily in isolation, Obviously, the affordability relative to single family has improved dramatically. And so while our rent to incomes versus pre COVID are plus or minus the same, The relative affordability versus single family has gone from, I think, 35% cheaper to about 45% cheaper. So a huge swing there given home price appreciation combined with where interest rates have moved recently. And so multifamily wins on that metric every time.

Speaker 3

So is the way

Speaker 5

to think about what you talked about in Tampa that the people who've maybe moved down with higher income, At least initially, maybe from New York, had a much bigger budget to spend and therefore JobUp rents, rent to income ratios didn't move because they were coming in at a much higher price point, I guess, given their income. But that maybe is That benefit is subsiding and you don't really have that arbitrage as much going on. Is that kind of what's going on?

Speaker 3

Yes, that's a good way to look at it. And we think that they are a little bit more stickier. We think they've created a lot more jobs down there. The wage and Growth has been incredible, so that's helping out as well. So that's just some of the experience.

Speaker 3

And again, it's only a couple months of information right now. So So it's not necessarily a trend yet, but it's something we're definitely starting to watch.

Speaker 2

Juan, Toomey, just give you a couple of data points that are helpful. One, it's great that Mike has all this data at his access and can look at how he's pricing and thinking about the future With respect to turnover, pricing power, what our resident composition is. But on the rent to income piece, With record low turnovers, our average residents, 34 years old, they've been with us on average 28 months. And so over that 28 month period, I can guarantee you they've gotten a few raises. Their positions have improved.

Speaker 2

So income growth It's a huge driver of potential pricing power. And we, as you can see in our G and A number, we're handing out raises. And that's what it takes. And if you've hired anybody lately, you've probably been a little shocked at the sticker. So wage growth in America, we haven't seen this type.

Speaker 2

I can't remember ever seeing this type of numbers moving. So I think that embedded A resident who's been with us for 3, 4 years has done really well and has the ability to pay these higher rents. And that's hard to capture in a real time database.

Speaker 5

Got it. Thank you very much.

Operator

Our next question is from Joshua Dennerlein with Bank of America. Please proceed with your question.

Speaker 2

Hey, everyone. I wanted to explore a similar topic. In the opening remarks, you mentioned that renting across your Folio within your markets is, I think, 45% cheaper than owning across those markets. I guess, what's the long term average? Maybe how should we read into this?

Speaker 2

Does this imply we'll see kind of rents kind of keep climbing so you get to that more normalized level? Or maybe it's just not even mean reverting? Thanks.

Speaker 4

Yes, I think, thanks, Josh. Long term average is plus or minus 35% cheaper when you look across our markets. That's really looking at kind of a trailing 10 year type of number. So I think when you get to kind of these levels of extremes, Yes. We go back to financial crisis when homeownership peaked out around 69, dropped in the low 60s.

Speaker 4

And so you went from a homeownership more of a rentership in terms of household formation. And so I think if you use that as an example, I think it bodes well in terms of as new household formations are formed. Renterships should gain more than their fair share of that housing and the demand itself. I think it's another tailwind as we kind of head into 2023 and look at population growth, income growth, hopefully improved immigration policy. The relative affordability piece definitely tilts in our favor.

Speaker 4

And so I think it's just more of a long term benefit for us hopefully.

Speaker 2

Okay. And any particular market kind of stand out Do you look at it on a market by market basis or just portfolio wide?

Speaker 4

Yes. We've looked at both individual markets and Obviously, from a bigger picture, just portfolio perspective, I think it's interesting when you look at some of the coastal markets. Yes, that dynamic has actually improved a little bit versus long term averages. So coastal markets always are significantly more expensive to own than rent, and that's probably moved even a little bit more so than the average in terms of renterships And then if you go down to Sunbelt, still has improved, but probably not quite as dramatically. And we can do a follow-up call if I can kind of go market by market.

Speaker 2

Yes, it will be interesting. Thank you.

Operator

Our final question comes from the line of Connor Mitchell with Piper Sandler. Please proceed with your question.

Speaker 2

Hi. Thank you. Thank you for taking my question. So I have two questions. First, so you're running at about 97% Occupancy and recently raised $400,000,000 both of which sound like positioning the company for potentially tougher times ahead.

Speaker 2

At the same time, you guys sound enthusiastic on new investment. So can you help us understand, are you leaning more towards

Speaker 4

Hey, Connor, it's Joe. So I definitely wouldn't say that the raising of equity signals that we're positioning for more defensive times ahead. If you go back to what we did last year, where we issued 1,000,000,000 plus of capital invested, dollars 1,000,000,000 is talking about 3rd party transactions. We did that because we had a good cost of capital and opportunity set that was for investors and those assets now that we bought is kind of low 4s and thought they grow over time on a mark to market basis. I think you have to do mid to high fives yield at this point in time.

Speaker 4

So that's done fantastically well. I don't know if this next round of Capital deployment is going to be quite as accretive, but we hope that it will. We've got a lot of unique value creation drivers that When we find the opportunities set out there, which at times are difficult, it takes a lot of effort. But if we can find them, then we're more than happy to raise that equity. I think on the 97% side, I don't think that's necessarily a defensive mechanism.

Speaker 4

We've consistently run above 97% over the last Several years other than kind of early in the COVID crisis. We think we can actually run higher than that over time. When you look at what we're doing in terms of trying to compress vacant days And how we're trying to retain more residents to the customer experience and then continue to augment and reengineer the pricing engine, We don't see why that number doesn't actually go higher while not actually sacrificing anything on the renter revenue side. And so I think that number should tick higher over time. So I'd definitely say we're not positioning defensively.

Speaker 4

That said, we're very cognizant of the rest that are out there right now.

Speaker 2

Okay. Yes, that's helpful. And then my second question is, the apartment community has been pretty well organized in California to advocate Are you seeing this banding together effort in other markets like New York, Boston, DC, etcetera, To advocate similarly? Yes, Connor. No, that's a good question.

Speaker 4

This is Chris.

Speaker 2

I mean, obviously, CAA It's very well funded. They're very well connected. They're probably the preeminent organization, apartment organization at the state level around the country. But you see a lot of cohesion in the state of Washington, for example. You mentioned New York with either Redmi or RSA.

Speaker 2

A lot of the large players advocate with them, with our dollars, with our time, all that kind of stuff, the exact same thing down in D. C, Maryland, I think all of us are very involved, really in every market. And it's different than 5 to 10 years ago. 10 years ago, You thought about things like rent control, just cause eviction, etcetera. There were a number of states largely in the Sun Belt that you just didn't even have to pay attention to.

Speaker 2

That has changed. We're not seeing a lot of action in those states yet, but there's definitely more discussion on the topic. So Yes. We are heavily involved. All of our public peers are heavily involved.

Speaker 2

And once again, we have to keep on Educating people, the decision makers, the voters about why rent control is not the most effective way to address affordability issues. All right. Also helpful. Thank you.

Operator

There are no further questions in the queue. I'd like to hand the call back over to Chairman and CEO, Mr. Toomey, for closing comments.

Speaker 2

Thank you for all of you and your time and interest UDR, I started off the call with the strongest operating environment in my career and I cannot reemphasize that. This is Juan, yes, it is the strongest. No question about it. But looking over the Q and A and the topics, and we appreciate all of your interest and those questions, I see a trend towards what are the short term aspects of our business and how is it performing. And we can appreciate your interest in that level, but I also think it gives us an opportunity to focus on what's the long term value creation.

Speaker 2

And the industry is In great position. A lot of participants are doing very well, creating a lot of value. And as we look at UDR and its uniqueness And how we can sustain that and provide exceptional returns, it always starts with the culture of the enterprise. And the culture is very strong. We've done come through COVID and prospered well during that environment.

Speaker 2

It's also the processes that we use, both decision making, discipline and data. I think the things that make us unique and different is our innovation, our technology being applied and delivering margin advantage. And lastly, having a broad set of opportunities and value creators, whether that's market exposure or different programs Create value through all cycles. And that is the value of an enterprise if they can manage all cycles and continue to create value throughout. I'd like to thank all of my associates, fellow associates.

Speaker 2

Strong quarter. We're approaching prime leasing season, excited about it, What the platform is going to be able to do and continue to grow. And with that, I'll close and say we look forward to seeing a lot of you at MAREIT A few weeks and take care.

Operator

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

Powered by Quartr
Earnings Conference Call
UDR Q1 2022
00:00 / 00:00