Benjamin W. Schall
Chairman, President, CEO at AvalonBay Communities
Thanks, Jason. In terms of key themes for this quarter, I will start by reviewing our strong start to the year and describe why we believe our suburban coastal portfolio is particularly well-positioned. Sean will discuss our operating performance and relative strength as we enter the peak leasing season, Matt will comment on the evolving development market in detail the differentiated earnings stream, that our developments currently underway sectorwide. And Kevin will review our strong financial position and highlight the advancements at our industry-leading, centralized service center to utilize to drive revenue and operating efficiencies.
Turning to our presentation. Starting on Page 4, we continue to meaningfully grow earnings in Q1 with core FFO increasing 13.7%. Significant part of this uplift is related to the roll through of leases signed last year. We also continue to grow rents during Q1, with life term effective rent change of 4.1%. For the quarter, we exceeded core FFO guidance by $0.05, with the $0.01 of revenue primarily attributable to better-than-expected collection rates from residents, $0.03 due to lower operating expenses and $0.01 related to interest income and other items.
In early-April, we drew down the proceeds of our equity forward, which we entered into about a year ago at the spot price of $255 per share. A couple of items to highlight here. First, the initial cost of this $500 million of capital is in the low-4% range. As was originally intended, we've allocated this capital to development projects underway which are projected to generate development yields of 6% or more. So when we talk about funding our underwrite development at yesterday's capital cost, this almost 200 basis-point spread is what we're referring to and leads to significant value-creation for shareholders as these projects stabilize.
The second aspect of the drawdown of the equity forward is unique to the current environment in which we can earn outsized returns on cash. We weren't originally planning to drawdown the equity forward until Q4 of this year, but we executed now and have invested the cash at 5% plus interest rates, with extremely strong banking partners. On a net basis, the incremental income on this cash is projected to increase 2023 core FFO by approximately $0.03 per share after factoring in the incremental shares outstanding.
We, in turn, increased our full-year core FFO guidance by $0.10 to $10.41 per share at the midpoint. The breakdown is as follows: $0.02 in revenue with $0,01 from Q1 and then an additional $0,01 in Q2 based on slightly better rental rates. There is an assumed $0.02 improvement for operating expenses for the full year, which includes the $0.03 from Q1, partially offset by $0,01 higher opex in the second half of the year; and then $0.06 of additional core FFO, primarily from the interest income on the equity forward proceeds as well as other cash management and slightly updated assumptions related to the transaction timing. We do not adjust our same-store guidance ranges at this point and we'll reevaluate those as part of our more fulsome midyear reforecast.
Turning to Page 5, regarding market fundamentals. Occupancy and rent trends in our established regions are experiencing less volatility than in the Sunbelt regions. Part of this is a reversion to long-term trend lines. There also underlying demand factors providing greater stability in our established regions and two are worth noting. First rent-to-income ratios are generally in-line with traditional levels. As noted in Chart 3, effective market rents in our established regions have grown about 10% over the past three years, with income level is more than keeping pace with rent growth.
And second, with limited single-family home inventory and higher interest costs, the economics of renting are considerably more favorable than buying homes in our markets.
The near-term supply picture also bodes well for the performance of our suburban coastal portfolio. As shown on Page 6, our established regions have meaningfully less new supply coming online this year estimated at 1.6% of stock as compared to Sunbelt markets at 3.6%. And as shown on the right-hand side of this page, when we look at supply that is directly competing with our portfolio levels are even lower at 1.4% of stock overall, and only 1.2% of stock in our suburban markets, which comprises roughly two thirds of our portfolio.
In terms of our portfolio allocation objectives, we do still want to shift 25% of our portfolio to our expansion regions overtime in order to diversify and optimize our longer-term growth profile. So that has not changed. And in the near term, the relative trade of selling assets in our established regions to acquire assets and expansion regions, it could be more attractive to us than it has been, allowing us to more profitably reposition our portfolio for future growth.
And with that, I'll turn it to Sean for more specifics on the operating backdrop.