UDR - Q1 2024

Transcript

Operator (participant)

Greetings, and welcome to UDR's first quarter 2024 earnings call. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Vice President of Investor Relations, Trent Trujillo. Thank you. Mr. Trujillo, you may begin.

Trent Trujillo (VP of Investor Relations)

Welcome to UDR's quarterly financial results conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the investor relations section of our website, ir.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. 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. A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements.

When we get to the question and answer portion, we ask that you be respectful of everyone's time and limit your questions to one plus a follow-up. Management will be available after the call for your questions that did not get answered on the call today. I will now turn the call over to UDR's Chairman and CEO, Tom Toomey.

Tom Toomey (Chairman and CEO)

Thank you, Trent, and welcome to UDR's first quarter 2024 conference call. Presenting on the call with me today are President and Chief Financial Officer, Joe Fisher, and Senior Vice President of Operations, Mike Lacy. Senior Officers Andrew Cantor and Chris Van Ens will also be available during the Q&A portion of the call. 2024 is off to a very solid start, due to better fundamental backdrop than initially expected and the operating strategies we continue to employ to outgrow competitors in our markets.

Positive fundamental drivers for our industry include, first, year-to-date employment creation of approximately 800,000 jobs, has already exceeded initial full-year economist consensus growth expectations. Second, more than 100,000 newly delivered apartment homes were absorbed during the first quarter, the strongest first quarter in over two decades. Adding to that, total housing deliveries remain stable, and development starts continue to decline.

This bodes well for rent growth in the years ahead. And third, renting an apartment is, on average, 60% more affordable than owning a single-family home in the markets where we operate, a cycle best level of relative affordability. These trends, combined with the operating tactics we utilize, have led to positive momentum across all key operating metrics. This includes more robust traffic, higher leasing activity, lower turnover, lower concessions, higher occupancy, and better pricing power than originally expected. In all, this translates to what I would characterize as green sprouts. Mike will provide additional details in his remarks. However, as we only have completed the first four months of the year, we remain wary of the volatile and elevated interest rate environment and the effect it may have on pricing and concessions of lease-up communities, given the heightened new supply the industry faces in 2024.

We feel good about 2024 thus far, but we'd like to see more evidence of continued operating momentum as we progress through peak leasing season before revisiting our full year guidance. Big picture, I remain optimistic on the long-term growth prospects of the multifamily industry and UDR's unique competitive advantages that should enhance that growth. We have a strong culture, a talented team with a robust track record of performance, and we continue to invest in our associates and embrace technology to create value for all of UDR stakeholders.

Finally, I'd like to take a moment to celebrate the upcoming retirement of Senior Vice President and Chief Investment Officer Harry Alcock, who will soon be transitioning to a consulting role with a focus on sourcing transactions. Harry and I have worked together for approximately 30 years, and he has been a trusted partner through all of it. He helped UDR grow to be a thriving $20 billion enterprise we are today, while also grooming our next wave of talented investment and development professionals. Harry, thank you for all you've done, and we all look forward to working with you in your new role. With that, I will turn the call over to Mike.

Mike Lacy (SVP of Operations)

Thanks, Tom. Today, we'll cover the following topics: Our first quarter same-store results, early second quarter 2024 trends, and how they factor into our full year 2024 Same-Store growth guidance, an update on our various innovation initiatives, and expectations for operating trends across our regions. To begin, first quarter year-over-year same-store revenue and NOI growth of 3.1% and 1.2%, respectively, and 0.4% sequential same-store revenue growth were slightly above our expectations. These results were driven by, first, 0.8% blended lease rate growth, which resulted from nearly 4% renewal rate growth and new lease rate growth of -2.5%. New lease rate growth improved 260 basis points versus fourth quarter results, as concessions decreased by approximately a half of a week on average.

Second, 35% annualized resident turnover was 400 basis points better than the prior year. The 630 basis point delta between new and renewal rate growth, when combined with higher retention, led to a favorable outcome. And third, occupancy remained strong at 97.1%, supported by healthy traffic and leasing volume. New York, Washington, D.C., San Francisco, and Seattle, which collectively constitute 36% of our same-store pool, were standouts, averaging nearly 98% during the quarter. Shifting to expenses, year-over-year same-store expense growth of 7.5% in the first quarter was in line with our expectations and inflated by a tough comp against the one-time $3.7 million payroll tax credit we recorded and disclosed in the first quarter of 2023. After excluding this credit, our year-over-year same-store expense growth would have been a more reasonable 4%.

Moving on, strong core operating trends have continued into the second quarter, and every key revenue metric is exceeding our expectations through the first four months of the year. First, blended lease rate growth continued to accelerate from approximately 1% in March to roughly 2% in April, with concessions stabilizing at lower levels than the fourth quarter of 2023. All regions have demonstrated sequential blended lease rate growth improvement versus March, with our West Coast and Mid-Atlantic regions showing the most strength at approximately 3.5%. Based on current trends, we expect May blended lease rate growth to demonstrate further sequential improvement. Second, resident retention continues to compare well against historical norms, due in part to our customer experience project, which I will touch on later.

April retention is 400 basis points above prior year levels, representing the 12th consecutive month our year-over-year turnover has improved. Third, occupancy is holding firm in the high 96% range. Strong demand from continued job and wage growth has allowed us to simultaneously operate with high occupancy and push rental rate while maintaining rent income levels in the low 20% range. And fourth, other income continued to grow at approximately 10% in April, similar to what we achieved in the first quarter. As a reminder, other income constitutes roughly 10% of our total revenue. We remain pleased with the trajectory of our other income initiatives, such as the rollout and penetration of building-wide Wi-Fi, which contributes significantly to incremental same-store revenue growth. Looking ahead, we reaffirmed our full year 2024 same-store growth guidance in conjunction with our release.

We are encouraged by the strength of macroeconomic indicators, such as year-to-date job growth and wage growth, and the effect those demand drivers have had on our key performance indicators thus far. But we remain somewhat cautious given the volatile and elevated interest rate environment, combined with peak supply deliveries yet to come. Turning to regional trends, our coastal results have been above our expectations, while Sun Belt markets are in line and trending better. More specifically, the East Coast, which comprises approximately 40% of our NOI, was our strongest region in the first quarter. Boston, Washington, D.C., and New York all performed well, with weighted average occupancy of 97.5%. Blended lease rate growth was nearly 2.5%, and same-store revenue growth was 4.25%, which is slightly above the high end of our full year expectations for the region.

We expect this regional strength to continue. The West Coast, which comprises approximately 35% of our NOI, has performed better than expected. At the beginning of the year, we anticipated San Francisco and Seattle would lag our West Coast markets. While revenue growth results in the first quarter show this to be true on an absolute basis, both markets saw new lease rate growth improve by nearly 900 basis points compared to our fourth quarter results. The momentum in these markets has exceeded our expectations due to various employers more strictly enforcing return-to-office mandates, as well as increased office leasing activity from technology and AI companies. Lastly, our Sun Belt markets, which comprise roughly 25% of our NOI, continue to lag our coastal markets due to elevated levels of new supply, but have performed in line with our expectations.

Better job growth in these markets appears to be bolstering demand and absorption, and similar to other regions, we have seen Sun Belt concessions stabilize, sequential blended lease rate growth accelerate, and retention improve. We remain cautious on the Sun Belt in the near term, but have been pleasantly surprised by its recent trajectory. These regional dynamics reinforce the value of a diversified portfolio across markets and price points that allow us to pivot our short- and long-term operating strategies to maximize revenue and NOI growth. Moving on, we continue to make progress on various innovation projects that will benefit same-store growth in 2024 and beyond. One example of this is our customer experience project. We have consistently outperformed the public and private markets on NOI and margins over time.

Due to the focus on our leading operating platform and innovative culture, which has historically driven all aspects of income growth, operating efficiencies, and contained our cost structure. We are now turning to the next phase of our platform, which focuses on customer experience and retention. Through our proprietary Data Hub and the millions of data points we have accumulated over the last seven years, we have found that 50% of resident turnover is controllable, and that those residents with positive experiences and scores renew at a rate 20% higher than those with bad experiences. Knowing this, we see an opportunity to improve retention by 5%-10% versus the industry average of 50%, resulting in $15 million-$30 million incremental NOI opportunity. To capture this upside, we now track and score every interaction with our residents.

This has allowed us to make a transformational shift in the way we do business, with a move from being transactional in nature to a focus on the lifetime value of our customer. We are equipping our UDR team members with tools, training, and the ability to prevent or rectify bad customer experiences, which we believe over the coming two to three years, will materially improve the resident experience and our relative turnover. This should positively impact pricing, occupancy, other income, expenses, and margin as well. My thanks go out to the UDR associates nationwide that remain committed to delivering on our strategic priorities. You rightfully deserve credit for embracing our innovative culture and improving how we conduct our business. I will now turn over the call to Joe.

Joe Fisher (President and CFO)

Thank you, Mike. The topics I will cover today include our first quarter results and our updated full year guidance, a summary of recent transactions and capital markets activity, and a balance sheet and liquidity update. Our first quarter FFO as adjusted per share of $0.61 achieved the midpoint of our previously provided guidance and was supported by same-store revenue and NOI growth that was slightly above our expectations. The modest sequential FFOA decline was driven by an approximately $1.5 decrease from same-store NOI, primarily due to higher expenses attributable to seasonal patterns, and approximately a $0.5 decrease from higher interest expense and G&A. Looking ahead, our second quarter FFOA per share guidance range is $0.60-$0.62, with the $0.61 midpoint flat compared to the first quarter, due to nominal expected changes across NOI, interest expense, and G&A.

Year-to-date operating results are trending above our initial expectations, but with macro uncertainty and peak leasing season ahead of us, we have reaffirmed our full year 2024 same-store growth guidance ranges and plan to revisit them in the future. However, we did increase our full year FFOA per share guidance range by $0.02 due to the joint venture's successful refinancing of its senior construction loan at our DCP investment in Philadelphia, with no additional investment from UDR. Having addressed this risk, there are no remaining DCP senior loan maturities until 2025. In addition to the Philadelphia investment, there remain three additional DCP investments totaling approximately $50 million on our watch list, with no material changes since the fourth quarter.

Beyond this, our remaining $440 million of DCP investments are performing well, as they were primarily 2021 and 2022 vintage developments, which have not encountered material construction cost overruns or delays, and are performing in line to above pro forma on rents. Next, a transactions and capital markets update. First, in alignment with our capital light strategy, we made no acquisitions, new DCP investments, or development starts during the first quarter. We remain active in evaluating potential acquisitions through our joint venture with LaSalle, and are optimistic on the ability to complete additional accretive deals in the coming quarters. Second, during the quarter, we completed construction of a $54 million, 85-unit townhome community in Dallas, Texas. This community adds density to our existing Addison portfolio, while offering residents a complementary living option.

Our current development pipeline consists of just one community in Tampa, Florida, totaling 330 homes at a budgeted cost of $134 million, with 94% of this cost already incurred, thereby limiting our forward funding commitments. And third, during the quarter, we completed the previously disclosed sale of Crescent Falls Church, a 214-home apartment community in the Washington, D.C. area at a mid-5% buyer's cap rate for proceeds of approximately $100 million. Finally, our investment-grade balance sheet remains liquid and fully capable of funding our capital needs. Some highlights include: First, we have nearly $1 billion of liquidity as of March 31.

Second, we have only $115 million of consolidated debt, or approximately 0.6% of enterprise value, scheduled to mature through the end of the year, and only 11% of total consolidated debt scheduled to mature through 2026, thereby reducing future refinancing risk. Our proactive approach to manage on our balance sheet has resulted in the best three-year liquidity outlook in the sector.... and the lowest weighted average interest rate amongst the multifamily peer group at 3.4%.

And third, our leverage metrics remain strong. Debt to enterprise value was just 30% at quarter end, while net debt to EBITDAre was 5.7x, which is approximately a half turn better versus pre-COVID levels. In all, our balance sheet and liquidity remain in excellent shape. We remain opportunistic in our capital deployment, and we continue to utilize a variety of capital allocation competitive advantages to drive long-term accretion. With that, I will open it up for Q&A. Operator?

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Your first question comes from Nick Joseph with Citi. Please go ahead.

Nick Joseph (Global Head of Real Estate Research and Head of US Real Estate and Lodging Research Team)

Thank you. Maybe just starting on the Same-Store revenue. Obviously, the first quarter was a bit better than what you expected, but hoping you could actually quantify kind of what your expectations were versus the 3.1% that you put up.

Mike Lacy (SVP of Operations)

Hey, Nick, it's Mike. I'll, I'll take the first crack at it. What we're looking at, and as a reminder, we had 70 basis points of blends for the year, and I would tell you our blends right now in the first quarter are running about 20 basis points higher to start the year, but April and May trending even higher. I'd say about 100 basis points higher than what we had in our original business plan going into the year. So to quantify that, if we're able to sustain that 1%, that's equal to about $8 million, and for us, on our revenue line, that's about 50 basis points. So again, it's, it's early in the season right now. We want to see how the next 30, 60 days play out, but right now we feel really good about where we're trending.

Nick Joseph (Global Head of Real Estate Research and Head of US Real Estate and Lodging Research Team)

Thanks. That's helpful. How about on the occupancy and the other income side relative to initial expectations?

Mike Lacy (SVP of Operations)

Occupancy in the first quarter was about 10-20 basis points higher than we expected, and over the last 30 days or so, we've brought that down. So we're running right around 96.9 today. Expectations are we'll continue to see that probably migrate down maybe 10 or 20 basis points as we continue to push our blends a little bit higher. So overall, I'd say occupancy is pretty much on target through the first four months or so. Other income, though, great. I mean, I'll tell you, we were 10% above last year to start the year.

April's trending in the same direction. That's probably 200-300 basis points higher than we originally thought, and a lot of that has to do with the success from the teams on the field, really driving these initiatives home. So right now, other income feels really strong. And a lot of this just points back to our strategy, and we've talked about this over the last couple of months. It's start the year with high occupancy, start to push our blends, test the water as we have demand, and it's all starting to play out for us today.

Nick Joseph (Global Head of Real Estate Research and Head of US Real Estate and Lodging Research Team)

Thanks. That's helpful. And then, you touched in the prepared remarks about the benefits of the low turnover that continues to drive lower the high retention. When you look at the renewals you've sent out for May and June, I guess, first of all, where are those renewals going out? And then is there anything from a take perspective or a negotiating perspective that gives you any indications that turnover won't continue to stay low or even trend lower from here?

Mike Lacy (SVP of Operations)

Yeah, Mike again. Good question, Nick. Right now, we're sending out around... It was around 3.8% through June on renewals, and then in July, we just sent out about 4.5% growth. So we are getting a little bit more aggressive on our renewals, but at the same time, we're really pushing our market rents, and so we're trying to compress the, the new and renewals. And I think what you saw from us in the first quarter was about a 600 basis point difference between new and renewals. My expectation is it's gonna come down to around 300-400 basis points as we move throughout the second quarter, and that's really setting us up to drive total blends, which is equating to total revenue growth a little bit ahead of our expectations.

Nick Joseph (Global Head of Real Estate Research and Head of US Real Estate and Lodging Research Team)

Thank you.

Operator (participant)

Next question, Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Austin Wurschmidt (Senior Equity Research Analyst)

Great. Thanks. Mike, you commented, want to hit back on the leasing trends about May, lease rate growth improving versus April. You talked about how things have kind of trended, you know, I think, you know, through the first quarter into April relative to expectations, but which markets are really driving that improvement into May? And, and maybe where are you becoming a little bit more aggressive on the renewal rate growth? And then do you think you can kind of keep retention or keep occupancy high, you know, while pushing a little bit harder?

Mike Lacy (SVP of Operations)

Yeah, great question, Austin. We are seeing more strength from based on our own expectations coming to the year, really out of the West Coast right now, and we've talked a little bit about what we've experienced in Seattle and San Francisco, and we're starting to see the same thing come out of the East Coast. New York's really picking up as demand picks up. So a lot of strength coming out of our coastal markets, and that's where we're seeing on an absolute basis, the highest rents. And I'll tell you, the one that's been a surprise as of late, and thankfully, it's 15% of our NOI, is D.C. It's really starting to come on strong, starting to see blends in that +4% to 5% growth.

And a lot of that has to do with getting more aggressive, to your point, on renewals, seeing that they're very sticky, and it's allowing us to drive our market rents up as well, and it's translating to positive new lease growth. So overall, the coasts feel very strong, but in addition to that, Sun Belt's hanging in there. And what I'm experiencing today is momentum on a month-over-month basis, seeing positive trends coming out of those parts of the country as well. So overall, things feel very positive today.

Austin Wurschmidt (Senior Equity Research Analyst)

So yeah, my follow-up, kind of wanted to dig in a little further on sort of the positive surprise or, yeah, seemingly like you, you know, feel fairly good about the Sun Belt relative to expectations. So, I mean, would you be willing to say that the worst is behind you in the Sun Belt and that, you know, potentially the benefit of better job growth and maybe easier comps in the back half of the year could lead to continued acceleration? What are sort of the updated thoughts on, you know, the outlook through the balance of the year?

Mike Lacy (SVP of Operations)

Yeah, Austin, that's. I've been getting a lot of questions on the Sun Belt, so maybe, maybe let me step back a second and just give you a little bit more color. As a reminder to the group, it's, that's about 25% of our NOI. To your point, we know supply is, it's a certainty, and it's, it's in front of us. Peak deliveries are still right around the corner, but at the same time, it's during peak demand. So that's, that's a positive, and we're seeing stronger job growth as well as demand's a little bit stronger, and a lot of that has to do with record absorption. So overall, while it feels good, we're cautiously optimistic, just given that supply is still coming.

But just to give you a little bit more color on it, what we're seeing on the ground, I think things that we look at, first and foremost, are your concessions. And I would point to, in Texas today, we're seeing 1.5 weeks, and in Florida, it's about 0.5 week in concession on our portfolio, which is a pretty significant improvement over the last six months and lower than what we're seeing from some of the comps in those areas. In addition to that, occupancy in the Sun Belt, we're running around 96.5%-96.7% today, so still very healthy occupancy. And again, we're seeing blends improving on a month-over-month basis. And just to give you a couple stats, in April, we were -1.5% in the Sun Belt for blends.

That compares to -2.2% during the first quarter. I'd tell you, May is shaping up to be even better. So overall, blends continue to improve. But where I'm most excited is our other income, and we've been driving home some of our initiatives in the Sun Belt. I think specifically, the bulk internet rollout, that's really taking hold. It's allowing us to drive our other income above 10% in that part of the country, and it's allowing us to drive our total revenue. So again, cautiously optimistic, just given that peak supply is in front of us, but it's a much better position knowing that demand is also coming at the same time.

Austin Wurschmidt (Senior Equity Research Analyst)

Then just, can you just clarify, did you guys underwrite 5% other income growth for the year?

Mike Lacy (SVP of Operations)

We were between 5%-7% growth on our other income line, and again, we're holding around 10% today, so that's a 200-300 basis points improvement from what we originally expected.

Austin Wurschmidt (Senior Equity Research Analyst)

Great. Appreciate the time. Thank you.

Operator (participant)

Next question, Steve Sakwa with Evercore ISI. Please go ahead.

Steve Sakwa (Senior Managing Director)

Yeah, thanks, Mike. Appreciate all the comments on some of the trends by market. I'm just curious, in the Sun Belt, you know, given that we've got heavy deliveries coming over the next four quarters, is it your expectation that the better trends continue, or is this maybe been either a little bit of lull in supply or maybe stronger demand? And like, I guess, how are you thinking about those concession trends maybe over the next several quarters?

Mike Lacy (SVP of Operations)

Yeah, Steve, we still think that peak supply is; it's gonna hit us here in the next couple of quarters. So we're gonna continue to watch that, lean into the things that we control. And again, that's where we're hitting our other income and driving our results against the peers on a relative basis. But we do expect that we're gonna continue to face some headwinds, just given supply is in front of us for the next six to 12 months in that market.

Tom Toomey (Chairman and CEO)

Hey, Steve, this is Tom. Just to add some more color, and I think we had it in our prepared remarks. Record absorption in the first quarter, the high for two decades. The jobs number, I think, has surprised us all through the balance of the year. If that continues, the Sun Belt has a pretty good path, if you will, and absorb it. I'm not sure betting on the jobs market going into an election cycle is a very strong bet on that piece of the equation.

Second, you know, we're still a little raw from last September, October, when we saw interest rates spike and we saw developers panic and go to a heavy concession template in that supply-type market setting. And I think we just kind of be prudent for us to just play it through and see how it falls. I wouldn't get overly optimistic or pessimistic. We. It's just easier for us to say we're gonna play it month by month and see what the traction is with respect to new and renewals. But right now, after four months, headed into the fifth, feel better than we expected.

Steve Sakwa (Senior Managing Director)

Okay, and maybe one for Joe. Just as you think about maybe any opportunities for capital deployment, I know you probably don't like where your stock's trading, but you know, how are you thinking about any kind of investment opportunities, whether it's DCP or land purchases for future developments? Like, just kind of where are the return opportunities? Where is the opportunity set today?

Joe Fisher (President and CFO)

Yep. Hey, Steve. So I'd say, number one, balance sheet remains in phenomenal position. So liquidity-wise, maturities, sources and uses all look to be in really good position. So we're able to kind of sit back and be in this capital-light environment and wait to pivot to offense. I'd say opportunity-wise, yeah, the transaction market was finding footing there in terms of agreement on where cap rates were, and buyer sellers were coming together. Obviously, this recent surge in rates creates a little bit more of an unknown in that environment. And so we're kind of sitting back, trying to see where valuations start to settle out here a little bit. But where we probably try to target today, two different areas.... one is on the JV acquisition side, that JV that we put together with LaSalle last year.

We'd, of course, like to continue to deploy with them as we did in the fourth quarter. So trying to find deals in our existing markets, deals down the street, and then get the additional upside from the fee stream that comes off of that. So continue to show them a lot of transactions, so hope to get some things done here in the coming quarters with them. The other area is within the DCP pipeline. While we're not seeing much on traditional DCP, given that we're not seeing a lot of new starts and activity there, we are seeing a little bit more on the recap opportunity side.

As we look ahead to potential pay downs or payoffs that may come out of that DCP pipeline in the next 12 months, we're starting to evaluate some opportunities for redeployment to put some capital out there on that front. On the development side, you mentioned that, you know, we've got a really good land pipeline right now with a lot of deals that are shovel-ready. That team's just continued to work out cost and monitor the market and wait to see where we get on some of those yields before we start some of those. But we've got a really good opportunity to hit that hard as well, once the market kind of comes into our favor.

Steve Sakwa (Senior Managing Director)

That's it for me. Thanks.

Operator (participant)

Next question, Josh Dennerlein with Bank of America. Please go ahead.

Josh Dennerlein (Senior Equity Research Analyst)

Yeah. Hey, guys. Just wanted to hit on some of the expenses. I was looking at Attachment 8. There's a couple markets where you had some pretty big jumps year-over-year, like Seattle, Boston, Monterey Peninsula. Anything going on in those markets that we should be aware of on the expense side?

Mike Lacy (SVP of Operations)

Yeah, Josh, I'd say first and foremost, you have to remember the CARES. We're anniversarying off of that. So as a whole, that had about, call it 350 basis point growth rate. So if we didn't have that, we would've been 4% overall. But specific to some of these markets, Seattle, as an example, we had taxes go up about 9%, so that drove a little bit more growth there. A place like, Monterey Peninsula, utilities were up 7%. So you have some of these other factors that are in play in addition to what we're anniversarying off of, given the CARES Act. So that's driving some of the, the higher growth, if you will.

Joe Fisher (President and CFO)

Josh, I'd just add to that, just because we did get a couple of questions overnight on the expense number. I think we did a great job of telegraphing what was going on there with that CARES Act comp in 1Q, and I think a lot of notes noted that, but that was in line to slightly better than we had expected. So that 7.5% overall expense growth number was definitely not a surprise to us. And so as it relates to the range for the, yes, rest of the year, we definitely see the path to see that year-over-year number come down here for the next three quarters.

When you look at the initiatives around that, you know, be it additional, you know, automation of leasing, more no-staff properties, some of the stuff we're doing with SuiteSpot, some of the purchasing, we still got a lot of initiatives out there to keep that expense number controlled as we have in the past. So, I would not let 1Q scare you in terms of, is that gonna be a recurring issue for us?

Josh Dennerlein (Senior Equity Research Analyst)

Okay. No, I appreciate that. And then back on other income, just kind of curious, what's driving the outperformance in the other income line? You mentioned the building-wide Wi-Fi. Is that, like, people can sign up any time? Or I kind of thought, is that like lease renewal or when there's a new lease signed? So any color there would be great.

Mike Lacy (SVP of Operations)

Yeah. So let me, let me give you a little bit more color just to ... Again, remember, by other income, it does make up just over 10% of our total revenue. And so on our stack, we're looking at about, call it $40 million, and a quarter of that growth came from the rollout of our bulk internet. And so we did see about $1 million benefit during the quarter, compared to about $100,000 last year.

So the, the majority of it's coming from rolling out that initiative. In addition to that, I'd tell you, team's doing a, a really good job just driving some of our other initiatives as it relates to, renting out common area spaces or adding parking in terms of more assigned spots there. We're pushing up some of our short-term furnished rentals, and then we'll continue to lean into some of the package lockers. So you put all that together, and you're looking at about a 10% increase on a year-over-year basis. And again, April and May look like they're tracking the same.

Josh Dennerlein (Senior Equity Research Analyst)

Okay, appreciate that. Thanks for the time.

Operator (participant)

Next question, Jamie Feldman with Wells Fargo. Please go ahead.

Jamie Feldman (Managing Director and Head of REIT Research)

Great. Thanks for taking the question. I was hoping you could talk a little bit more about how Class A versus B is performing across the markets, across your portfolio?

Mike Lacy (SVP of Operations)

Sure, I'll take that. So I have Bs outperformed our As on a blended basis at the portfolio level by about 50 basis points. So what we saw was 1% growth versus 0.5%. I'll tell you, the Sun Belt deviated from the recent trends we talked about last year, where Bs were underperforming As across the board. And this does suggest that the supply dynamics are impacting As more than Bs across the Sun Belt, which is more in line with traditional supply dynamics. So overall, it feels like it's normal, steady state today, and Bs are doing a little bit better.

Jamie Feldman (Managing Director and Head of REIT Research)

Okay, thanks for that. And then, you know, you mentioned Texas, but how's Dallas different than Austin, and then even Florida or Tampa, Orlando, and then Nashville, which, of course, is not Florida. But, can you just talk more granularly about those markets, or are they all pretty much doing exactly what you said, you know, in your broader Sun Belt comments?

Mike Lacy (SVP of Operations)

I can give you a little bit more color on the makeup of those regions and what we're seeing today. I think first and foremost, starting with Florida.... Florida makes up about 10% of our NOI, and it's really split between Tampa and Orlando. I'd say Tampa, we have about 20% urban, 80% suburban portfolio. We're seeing concessions around 0.3 weeks today. Occupancy is running in that mid-96% range, and Orlando is very similar. So we're seeing about 0.3% lease concession. Occupancy is a little bit higher, 96.9%. Blends are still slightly negative, but they continue to improve. And so Florida feels like it's on track with our original expectations for the year.

Specific to Texas, similar in the sense that Texas is about 10% of our NOI, but the majority of this is coming out of Dallas. So Dallas is 8% of our NOI market, we're 15% urban, 85% suburban. We are seeing elevated concessions around 1.5 weeks today, but that has improved from 2.5 weeks, about 60 days ago. And we're able to run occupancy in that mid-96% range. So overall, pretty decent numbers coming out of Dallas. Austin, probably the one of the weaker performing markets today for us. And again, this is only 2% of our NOI, so it's a, it's a relatively small market.

Seeing concessions in that 2-week range, which is probably the highest in our entire portfolio, and that's where we're facing the majority of our supply. But we're still running 96.7% occupancy. You can see in here, blends are still negative, but they are improving. So again, cautiously optimistic on a lot of these Sun Belt markets, but today they're performing at expectations.

Jamie Feldman (Managing Director and Head of REIT Research)

Okay, great. Thank you.

Operator (participant)

Next question, Anthony Paolone with J.P. Morgan. Please go ahead.

Anthony Paolone (Executive Director)

Thanks. Maybe, Mike, for you, I mean, you talked about how high the retention is and just the strength of the renewal rates. I'm just wondering, like, is there a loss to lease in the portfolio still? Or as we look over the course of the year, do you think this flips to, like, a gain to lease? Or how should we think about that and that divergence between new and renewal spreads?

Mike Lacy (SVP of Operations)

Yeah, Tony, what we're seeing today is a loss-to-lease right around, call it 2%-2.5%. Typically, that grows as you go through your end period over the next three to six months, and then it starts to trail off towards the end of the year. But right now, our loss-to-lease is hovering right around that 2%-2.5% range today. And I got to tell you, I'm really excited about what the team's done with the customer experience project, and I gave a lot of high-level information in my prepared remarks, but I think it's important just to dive into some of the things that we're doing. And I think first and foremost, our intention was to capture millions of data points.

And by that, I mean, we captured every voicemail, text message, email, surveys, service requests, every personal interaction. And so secondary to that was to develop these proprietary resident community-specific dashboards that chronologically align interactions. I think that's the key word. It's chronologically putting these in order so our teams know exactly what's happening at any given time. And I'll tell you finally, taking all this information and scoring each experience to gauge real-time sentiment to orchestrate a better living experience has been huge for us. And so while it doesn't go unnoticed that people aren't moving out to buy homes as much as they were, say, last year or the year before, this is a big dial mover for us and something that our teams are really leaning into.

Joe Fisher (President and CFO)

Hey, Tony, just one other thing, too, in terms of kind of that momentum and that loss-to-lease question. I think probably one of the things we're most excited about on a year-to-date basis, when you look at the combination of our gross rents and that concessionary number coming down since the start of the year, we're actually up ±3% on effective rents on a year-to-date basis, which through the first 120 days, is a really good result relative to historical averages.

Obviously, that's being led by East Coast and West Coast doing a little bit better. But even Sun Belt, as Mike talked about, you know, we're seeing market rents move higher there. And so when you worry about that gain to lease, the fact that market rents continue to move higher at the same time that we're pushing our blends both on renewal and new basis higher, you know, we feel pretty good about that trajectory in terms of as a forward indicator.

Anthony Paolone (Executive Director)

Okay, thanks. That's helpful. And then just the other one, can you comment on what bad debts were in 1Q and whether you expect any improvement from here for the rest of the year?

Joe Fisher (President and CFO)

Yeah, so when we put together guidance, we had assumed a flat year-over-year number from 2023 to 2024 for bad debts. Most of that really being due to the fact that we think we did a really good job of assessing the AR balances historically and knowing kind of what we are going to receive over time. And I'd say that's continued to play out. The good thing is, you know, from a trend perspective, we are seeing some of those long-term delinquents, both the number of them as well as their average balances, have actually been coming down a little bit as we've seen some of those eviction moratoriums come off and seeing the courts open up. And so we're seeing the numbers get better there.

We're seeing end of month and subsequent to month-end collections continue to improve and be some of the strongest that we've seen throughout COVID. And so the trends right now look pretty good. I'd say, so we're probably a little bit ahead from a bad debt perspective. So I think when we revisit guidance in the future, we'll iron out that number and talk about it a little bit more. But we are really excited about the potential, perhaps this year, but definitely going into the future, the actions we're taking and the opportunity that it creates. You know, we've talked about the kind of 1.5% bad debt that we're running at. That's about $25 million a year. But when you factor in all the other costs from vacancy, turn cost, legal costs, CapEx, yeah, that's another $25 million right there. So it's kind of a $50 million total opportunity.

I'd say the actions on the front door being taken today, be it the ID and income verification and utilizing some of those AI-based tools, adjusting some of our processes and oversight, and just getting more eyes on that area, and then raising some of the thresholds around deposit requirements, income verification requirements, credit score, some of that. We're pretty excited about what that has the potential to do as we move forward into the back half of this year and into next year. And so we hope that that's another leg up in terms of that collection percentage and some of the delinquency stats as we move into the back half. But, I think by middle of year, this year, we'll hopefully have a little bit more visibility to speak to on some of that.

Anthony Paolone (Executive Director)

Okay. Thank you.

Operator (participant)

Next question, Michael Goldsmith with UBS. Please go ahead.

Amy Yi Li (Equity Research Analyst)

Hi, this is Amy. I'm with Michael. San Francisco and Seattle get a lot of attention, but the UDR portfolio has some significant exposure to Orange County and Monterey within the West Coast markets as well. So I was hoping that you could touch on the supply-demand trends in those markets.

Mike Lacy (SVP of Operations)

Yeah, let me give you a little bit of color on all of them. I think first starting with Seattle and San Francisco, because we do get a lot of questions regarding those markets. But first and foremost, performing better than we would have expected, and a lot of this has to do with things that are unique to our portfolio. So I'll give you an example. Seattle, for us, we're not located down in Seattle, so we're not facing as much of the supply pressure as some others are. We're more located in Bellevue and then out in the suburbs. And what we're seeing in a place like Seattle is Amazon's return to work has really helped demand.

And in addition to that, the light rail actually just opened up in the last week or so, and that's allowing people to get to Redmond, and it leaves every 10 minutes. So that's allowing some of the Microsoft employees to live in more of these urban settings and, and have a easy access to the suburbs. So that's helped out demand to some degree. I'll tell you, what we're seeing in Seattle today is blends at around 4.5%, and our occupancy is running around 97%. So overall, the fact that we don't have a lot of supply there, it's definitely been helpful. San Francisco, you know, we're 50/50, urban, suburban. We're down in SoMa as well as the Peninsula. We're seeing concessions come down pretty significantly.

We're right around one week today compared to two to three weeks, just 60 days ago. A lot of this has to do with return to office. I'd tell you, incremental steps to cleaning up the city, and then we're seeing AI and biotech jobs return, and we're seeing jobs return as well. So a little bit more demand in San Francisco and not a lot of supply to speak to.

So those markets have allowed us to really drive our blends into 2Q. And again, both markets are in that, call it, 4%-4.5% range. Specific to Orange County, that is 11% of our NOI. We're mainly suburban, seeing a lot more growth in the Newport Beach area than, call it, Huntington Beach, as well as Irvine, just because we have a little bit more supply that's putting pressure on us there. But overall, Orange County is performing as expected and feels pretty good today.

Amy Yi Li (Equity Research Analyst)

Great. Thanks. And then, a quick question on the other income. Improving turnover is certainly a positive both for the revenue and expense side. But I'm hoping that you can provide some examples of what sort of bad experiences you're seeing that you think that you can do better on from a resident experience side. Like, is this people complaining about loud trash removal or their neighbors, or, you know, how do you think that you can do better on these items?

Mike Lacy (SVP of Operations)

That's a really good question, and you'd be surprised to know that rent increases, I mean, while it's a factor, it's one of 15 factors, and it's not even in the top five. And so some of the things that we're finding with going through these billions of data points, it comes down to what you're saying. It comes down to trash, pet waste, noise, the movement experience. You have to make sure that that's bulletproof, as well as even pest issues. And so a lot of things that are very controllable, and that's why we're leaning into it.

The team's very focused on it. If we can adjust some of these things, we think we can change the trajectory, and we're seeing it play out in front of us. But I'll tell you, there's a lot more to come. I think there's probably another year to two years of learning, and we're going to continue to put trainings in place. We'll continue to AB test things, and we'll drive, drive this even further as we move throughout this year and into next year.

Amy Yi Li (Equity Research Analyst)

Great. Thank you.

Operator (participant)

Next question, Nicholas Yulico with Scotiabank. Please go ahead.

Nicholas Yulico (Managing Director)

Thanks. I guess first question, Mike, sorry if I missed this, but did you give the new lease rate growth, how that's looking in April for the Northeast? And could you also just explain why that, you know, that number was a little bit weaker than some other markets in the portfolio in the first quarter?

Mike Lacy (SVP of Operations)

So we did not provide that, but I'm trying to look through some of my notes here quickly. What I would tell you is new lease growth continues to improve. And when you think about what we just put out there as a whole on our blends being roughly around, call it, 2% in April, our new lease growth is roughly flat. And as we move throughout May, expectations are that that's going to turn positive.

And I think what we're seeing across the board, whether it's the Northeast or even the, the West and Southwest regions, we're seeing improvement there. And a lot of that has to do with pushing our retention up, holding our renewals at a pretty steady rate, and trying to find that happy medium on those blends between new and renewals. We're going to continue to test the waters while we can and see where it takes us. But overall, what we're seeing is a positive momentum pretty much across the board.

Nicholas Yulico (Managing Director)

Okay, thanks for that. Second question is, maybe for Tom or Joe. You know, in terms of, you know, it seems like you have the policy of not revising same-store guidance in the first quarter. And I know you talked about, you know, you still want to see the leasing season in the spring play out, and, you know, there are some reasons to be, you know, cautious in some instances. But you are, you know, it sounds like you are trending above the guidance. So I guess I'm just wondering, you know, what, you know, what is the reason at this point to have that policy since, you know, a lot of your peers do adjust in the first quarter?

In fact, I'd say much of the broader REIT market is willing to adjust guidance in the first quarter. So if you could just remind us sort of, you know, why you feel strongly about that policy, or if this is just an instance of, you know, situation on the ground, there's still reason for caution, Sun Belt supply, whatever it is, you know, driving that decision? Thanks.

Joe Fisher (President and CFO)

Yep. Hey, Nick, it's Joe. I'd say, you know, as it relates to the broader REIT market, we don't pay a lot of attention to their policies, but I'd just remind everybody, by and large, the broader REIT market is a longer lease duration sector, and so maybe a little bit less exposed to the volatility of supply or macros that comes quarter to quarter. So as we look at ours, we've traditionally had that policy, with the exception of during COVID, when we saw meaningful outperformance to start the year back in 2022. And so we traditionally said, we're only 120 days into the year. We've got a lot of the leasing season left.

We've got a lot of actions that we can take from a capital markets activity perspective, a lot of opportunities to innovate and drive performance, but also a lot of opportunities for supply to creep up on us or macro to creep up on us. And so we typically like to stay conservative, see how the market comes to us, focus on what we can control, and then as we have that news to deliver, we deliver the good news throughout the year and try not to get out of our skis. Last year, you know, as Tom mentioned, we were surprised by the, you know, kind of, reaction from some of the developers on the concessionary side to higher rates and some of the new supply coming on, and that surprised us September, October, November, and we had to reduce guidance.

By no means is that something that we want to repeat this year or at any point in the future. So that's definitely in the back of our minds as well. I would say, as it relates to the range, we think the range is still good. If we were well outside the range, then I think we'd have to give it a, a good thought. As Mike said, we're trending ahead, but ahead does not mean we're exceeding the high end of the range at this point in time, based off our internal forecast. That range is still a good range at this point in time. We're just doing better than the midpoint.

Nicholas Yulico (Managing Director)

Yeah, appreciate that. Thanks, Joe.

Operator (participant)

Next question, John Kim with BMO Capital Markets. Please go ahead.

John Kim (Managing Director)

Good morning. I don't think anyone's asked it yet, so I'll give it a shot. Your Attachment 8 you no longer provide the market detail on new and renewal spreads, and I was just wondering why decrease that disclosure. I found it very helpful in the past.

Joe Fisher (President and CFO)

Yep. Hey, John. So that's part of our annual review that we do with the disclosure committee. They go through and look at best practices throughout broader REIT space, but also just within the multifamily peer group. And so when we looked at what others did around disclosure of blends, we found that some do regional, some just do portfolio, but we were definitely an outlier with the level of detail that we provided on 20 different markets. And so when we looked at that and looked at the fact that some of these markets, you know, may only have 1,000 units in them, you know, when you look at a LA or Monterey Peninsula, Richmond and Austin, you know, those are three or four assets.

And I know a lot of, you know, investors and analysts utilize us as a read-through to some of the other portfolios that are out there, be it Coastal or Sun Belt. To the extent that you only have 1,000 units in a market, you can get more volatility off of a couple assets. It's probably not fair for a read-through to carry on to others. So we felt that regional still provided everybody across those, you know, six or so regions, the amount of detail that they needed to understand what was going on with our portfolio and potentially regionally for other portfolios. But we did want to remove the detail on individual markets, which Mike can still speak to, but just wanted to pull it back a little bit.

John Kim (Managing Director)

I gotcha. Joe, you also mentioned on the DCP, the watch list remains at $50 million over three investments. It didn't move, despite the favorable resolution of 1300 Fairmount. Can I ask what investment got added to the watch list and what the likelihood of consolidating any of these assets are, among these three investments?

Joe Fisher (President and CFO)

Yeah, no change to the watch list. So there's a total of four assets on that watch list. It's that Philadelphia DCP that we just went through that successful refi for, plus the three others that were still on there last quarter. So four in total, totaling $150 million. And so while we're obviously very pleased on the 1300 Fairmount transaction to see that refi get done with no additional investment required from us or the equity partner, you know, that buys two years, plus a one-year extension to continue to focus on operations there, get the NOI trajectory up, get into a potential different capital markets environment, and work through a lot of the supply that's in that submarket right now.

So, it's kind of a live to fight another day situation, and I'd say, thus far, really pleased with the leasing trends in the last 30 to 60 days as we see the occupancy numbers start to pick up from the, call it, high 70s into the mid-80s. And so like the trajectory they're on, but we're still keeping them on the watch list, for the time being. The three others are roughly $50 million across three investments. No change there. It's just simply the, you know, the NOI yields or the debt yields on those are kind of in that 6%-7% range. We'd like to see those in the high single digits as the rest of our portfolio is.

And, yeah, specific to those four deals, they kind of had a confluence of the three major risks that are out there, right? They had delays or cost overruns due to COVID, because they were older vintages. They had challenging submarkets, which pushed down rents and the cash flow stream, and then what everybody's dealing with, which is, you know, lower valuations, higher interest rates. So yeah, those are kind of the four assets that really have the only, the confluence of those three. The rest of the portfolio were different vintages, kind of 2021, 2022 type vintages, where, you know, they're in lease up, the pro formas are in line to ahead of expectations, and so debt yields are materially higher, and so we just don't see risk in the rest of the portfolio at this point.

John Kim (Managing Director)

Does your current guidance contemplate an unfavorable outcome for any of these three investments? In other words, could there be another upside to-

Joe Fisher (President and CFO)

No, that's a g-

John Kim (Managing Director)

-the guidance?

Joe Fisher (President and CFO)

Yeah, that's a great question. I should have clarified that. Thank you. No, the upgraded guidance took the downside risk from the Philadelphia out of the equation, so no FFOA risk related to that or the other three that we see this year. The next maturity for one of those is January of 2025, and thereafter, the other three are in mid-2026, generally. And so we have time on all of those.

I'd say if you wanted to bracket the potential downside, you know, if all four of those transactions, that $150 million, if we had to go off of the accrual and buy-in at the lower yield, it'd probably be about $0.03. Between now and two years from now, we obviously expect upside on NOI from those assets, and so we don't see that full risk coming to fruition, even if all three of those did eventually have to be taken back at their maturity.

John Kim (Managing Director)

Great. Thank you.

Operator (participant)

Next question, Adam Kramer with Morgan Stanley. Please go ahead.

Adam Kramer (VP and Equity Research)

Hey, guys, thanks for the time. Just wanted to ask maybe a little bit more of a high level, maybe theoretical, conceptual question. You know, you talked a little bit about the kind of robust jobs growth we've had so far this year, and I think it's something to certainly focus on when it comes to apartment demand. Maybe just walk us through, is there any kind of, I don't know if it's a rule of thumb or a way that you guys think about, you know, for X number of new jobs created, how many apartment renters are created or what that does in terms of kind of quantifying apartment demand for you guys?

Joe Fisher (President and CFO)

Yep. Adam, it's good because we kind of took a look at that as we stepped back. If you remember, when we put together our initial guidance, we had put together our top-down perspective, as well as the bottom-up budgeting process that we always do. And our assumptions that led to that ±1% rent growth or roughly 70 basis points of blends for the year, that was driven by a multitude of factors, including GDP, wages, job growth, all being low single digits based off consensus. We had a decline in homeownership rate and then the higher supply number that we knew and expected.

So the general rule of thumb is that for the two biggest drivers of that number, wages and jobs, about a 1% in the combination of those two relates to about a 1% increase in rents. So really, the only changes to our forecast at this point that we're seeing from a macro perspective, you know, supply, homeownership, GDP, all trending as we expected. It's really been jobs and wages have been coming in about 1% or so better, and so that 1% better would translate, if you will, into maybe 1% or so better rents over this year. If that holds, obviously, that's consensus, and it can change. But I think that's a lot of why you're seeing some of the performance that Mike talked about coming in better than we expected. It's been a much better backdrop in terms of the demand environment to date.

Adam Kramer (VP and Equity Research)

Great. That's, that's really helpful. Maybe just one, a little bit more on the ground, if you will. You talked about it a little bit earlier, but just, you know, I, I think that you guys are really kind of prescient and, and clear with the narrative last, last fall, post-Labor Day, you know, with kind of what happened with the 10-year at that time and, and kind of what that, what that meant for concession usage on the ground.

And, and, you know, maybe just looking at where the 10-year is today, maybe not quite where it peaked out, but, but certainly creeping higher than it has been the last number of months. Maybe just walk us through, you know, are you seeing kind of elevated level of concessions again? Are you seeing developers maybe change their behavior, given where the 10-year is relative to two, three, four months ago?

Mike Lacy (SVP of Operations)

Yeah. Adam, I'll kick it off and kick it over to Joe. I'll tell you what we're seeing on the ground, and you can see it in our numbers. Concessions have been coming, coming down, and I think this is due in large part to the fact that a lot of these deliveries are coming at the time where you also have demand picking up. And that's the big difference between what we experienced back in 3Q of last year. You had a lot of deliveries coming when, right when demand was starting to go the other way. And so there's a big difference there. There's still more supply to come, so we're again, cautiously optimistic about where this is headed. But from what we can see on the ground today, concessions have actually come down a little bit.

Tom Toomey (Chairman and CEO)

This is Toomey. I'd probably just add a little bit more to it. I mean, in the developer's mindset, he's looking at his rollover loan and what terms he can get in proceeds. And so in a case of last year, third quarter, you're really faced with falling rates, slow traffic, 50 bps spike in your refi, and your proceeds coming off 10%-20%. So you got squeezed from every angle possible, and you just drop rate to try to fill up, to get some level of cash flow. Because what's probably your most stressful point isn't necessarily the rate, it's the proceeds number.

And on a debt service coverage ratio, that squeeze right there means your check to rebalance your loan, if it's $100 million bucks and it went from $10 million-$20 million, you don't have the extra $20 million in your pocket. So you hit the panic button, and you try to respond that way. And can that happen again? Unlikely, but it can. And I think we want to be prudent and see how that emerges. And anyone that can figure out where the 10-year Treasury is headed, please call me, because it's a lot easier than buying lottery tickets.

Operator (participant)

Next question, Alexander-

Tom Toomey (Chairman and CEO)

Adam, did I kill you?

Operator (participant)

Next question, Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb (Managing Director and Senior REIT Analyst)

Hey, I think it's still good morning out there, so, thank you. Two questions. First, just looking at New York, with the recent rent law changes, one, do you see any DCP opportunities for you to help finance third-party office-to-resi conversions? And then two, with the new laws, really, you know, do you see any buildings where either, you know, they're pre-2009, or you don't see a sight line to exceeding the luxury rents to escape good cause that you would look to prune?

Andrew Cantor (SVP Investments)

Hey, Alex, this is Andrew. I'll take the first question and then pass it off to Chris for the second one. As it relates to DCP opportunities, you know, we're always open to underwriting any transactions that we see in the marketplace. To date, we haven't seen anything yet, but we evaluate each opportunity based on its merits, and if it's the right deal, then we'll move forward. So at this point, there's nothing we're working on, but it is not redlined by any stretch.

Chris Van Ens (VP)

Hey, Alex, it's Chris. You know, before I dive into New York rent control, you know, maybe let me first step back, talk to the big picture a little bit more on the regulatory side. You know, so first, I would say many of our state legislative sessions have convened for the year. You know, while we continue to see bills signed into law that impact our, really, our business at the margin, you know, this really was the second year in a row where major legislation, like extremely restrictive rent control, I would say, for example, that could negatively impact our business in a significant way, was largely defeated in most of the areas we operate. Obviously, a good trend for the industry, trend we hope continues in the year ahead. So really, a big thanks goes out to our advocacy partners around the country.

As far as New York rent control, you talked about pre-29 or 2009 buildings. You know, it really seems like it'll be business as usual for us right now. I mean, we've lived with similar restrictions in California and Oregon, you know, for a number of years now. We've continued to generate good growth, good returns in those areas. We don't see it being much different moving forward in New York. You know, it's only very rare years, I would say, you know, where market rent growth is likely to be above CPI +5 or a cap of 10.

You know, lastly, I'd say, you know, of course, there's always the risk of a slippery slope, right? Does CPI +5 become more restrictive over time? Something we'll continue to monitor, you know. But again, we had the same concerns when AB 1482 was passed in California, and those concerns, you know, have not manifested to date. So all in all, New York included, you know, we feel relatively, I would say, okay about the regulatory environment right now.

Alexander Goldfarb (Managing Director and Senior REIT Analyst)

Okay, and then the second question is: You know, you guys have spoken about a pretty strong operating environment echoing your peers. It's interesting because on the office front, you know, there's still a sense of corporates, you know, outside of maybe Midtown Manhattan, still being hesitant to lease or to take space. So what are your property managers seeing as driving the demand?

Is it, is it really, is it just a lot of small businesses hiring and there's a disconnect, or are they seeing a lot of corporate, you know, jobs that are coming in to rent apart, you know, employees renting apartments, and therefore, you know, that's a, you guys are indicating a sign that, you know, the corporates are, are gonna, you know, return in a growth mode. Just trying to understand the disconnect between what the apartments and you guys are saying about healthier than expected demand versus some of the comments from other REIT sectors.

Mike Lacy (SVP of Operations)

Hey, Alex, it's Mike. Funny enough, I actually spent last week with our teams out there in New York and asked them that same question, and a lot of this comes back to lifestyle. So they're still saying that people are coming back to the market. They just want to live in Manhattan. They want to feel the experience of being there. And expectations are that they've somewhat plateaued in terms of people returning to the office, but there's still room for that to continue to grow. And if and when that happens, that'll only help demand even more. But we're continuing to see occupancy of almost 98%, and our blends are back up in that 4% range, so very strong demand in that market.

And we expect that to continue throughout the summer months, just given the fact that there's not a lot of supply to speak to in the city. You definitely have more in kind of Brooklyn, Long Island City, places like that. And as long as they don't go to two to three-month concession, that's not gonna pull people out of the city. And so we feel really good about New York today.

Alexander Goldfarb (Managing Director and Senior REIT Analyst)

Right. But Mike, across all the markets that you guys are in, you're seeing similar dynamic. It's just people wanting to live in the different markets, not necessarily, you know, meaningful job growth. I'm just trying to understand the difference.

Mike Lacy (SVP of Operations)

Yeah, Alex, I think that's, that's a fair point. I don't think every market's created equal, and I think as an example, I talked a little bit about San Francisco earlier. That market's still getting cleaned up, and I think once they get that cleaned up a little bit more, people will want to live down there, and it'll be a similar dynamic to what we're facing in a place like New York. But every market's created a little bit different. But overall, I'd say, yeah, those, those sentiments are the same across the board.

Joe Fisher (President and CFO)

And I'd say, too, Alex, just as it relates to the demand, I mean, we talked about jobs and wages both coming in ahead of expectations. The consensus is well over a million jobs at this point in time. And so while we focus a lot on the multifamily supply picture, as we should, and kind of that national picture of, call it, 600,000 or so units being delivered this year, keep in mind, the lion's share of housing is over on the single-family side, which is seeing minimal increase on a year-over-year supply basis at around 1.1 million units. You're also seeing from an existing supply perspective, really no homes being sold. You're back to kind of GFC lows.

You kind of do get into this environment where what's available for all those jobs that are being created, and therefore new households that are being created. When you have the relative affordability component in multi, where we are 60% less expensive than a single-family home, and that if you come rent with us, you can put an extra $35,000 a year in your pocket versus buying a home, that's pretty darn compelling. So you're seeing rentership gain more than their fair share of that demand that's being put out there into the market right now. I think that's a big driver of what we're seeing.

Alexander Goldfarb (Managing Director and Senior REIT Analyst)

Thanks, Joe. Thanks, Mike.

Operator (participant)

Next question, Linda Tsai with Jefferies. Please go ahead.

Linda Tsai (SVP and Senior Analyst)

Thanks for taking my question. In terms of April retention improving 400 basis points from a year ago, is this consistent across your portfolio, or are there regional differences?

Mike Lacy (SVP of Operations)

It's pretty consistent. Again, what we're seeing is a lot of these actions that are put in place from what we're doing with the customer experience project, and so I'd say relatively consistent across the board. The only difference I would tell you is in a place like the Sun Belt, historically, what we would have experienced is, call it 20% of our move-outs were leaving to buy a home. Today, that's closer to 10%, and so significantly less people moving out to buy homes in places where it was historically more affordable. But other than that, a lot of this has to do with the actions that we're putting in place through our innovation.

Linda Tsai (SVP and Senior Analyst)

Thanks. Then in terms of automation, as you move forward, does it ever become apparent that automation is being relied upon too soon, that, you know, efficacy falls short and it impacts service levels, and then you have to recalibrate and move people back into seats? If so, you know, how do you monitor-

Mike Lacy (SVP of Operations)

I think that's-

Linda Tsai (SVP and Senior Analyst)

monitor and correct that?

Mike Lacy (SVP of Operations)

Yeah, Linda, that's a fair point, and that's something we've experienced as we transition from, call it Platform 1.0, where the intention was to go to that self-service model, and we reduced our headcount by about 40%. We have found that there are cases where you have to add bodies back that will drive value in the long term, and so we've been going through that over probably the last 12 months or so, and we're still trying to find opportunities where we can run what we call the unmanned sites, and today, we're around 20% of the portfolio.

So we are adding back some customer service-type positions in the field to make sure that we're actioning all these items that we mentioned earlier as it relates to how you change that trajectory in, in retention. I think there are cases where you can find opportunities to drive value, and sometimes you do have to add bodies back.

Linda Tsai (SVP and Senior Analyst)

Thank you.

Operator (participant)

Next question, [audio distortion] with Baird. Please go ahead.

Speaker 19

Hey, everyone. Thanks for taking my question. Have your views changed for the Sun Belt on the timing to absorb all the new supply, given the strong absorption trends you've been seeing? No, I don't think... As we kind of look through it, obviously, we go through the peak delivery cycle here over the next couple quarters, and so Q2, Q3 is kind of your peak, but it's not a dramatic drop-off. It's gonna take a while to work through the lease-ups of those deliveries. But even into 2025, when you look at overall deliveries coming that year, it's gonna be a pretty normal year in terms of relative to long-term averages, with the coasts actually coming in a little bit lower as they start to see a drop-off a little bit quicker in terms of new starts and permitting activity.

Joe Fisher (President and CFO)

So Sun Belt still stays a little bit elevated as you go into 2025. I don't think it's till late 2025 that you really get the benefit of that, call it, fourth quarter of 2023 drop-off and sees up in capital markets, where you saw starts fall off a cliff down to kind of 200,000-250,000 on an annualized basis in 4Q 2023. And so, yeah, next year's probably a little bit more normal year. Still some pressure on the Sun Belt. 2026 has the potential to be a pretty phenomenal year in terms of the lack of housing that's available out there and what that could mean for fundamentals for our sector.

Speaker 19

That's it for me. Thank you.

Operator (participant)

Thank you. I would like to turn the floor over to Tom Toomey for closing remarks.

Tom Toomey (Chairman and CEO)

Thank you, operator, and thanks to all of you for your interest and support of UDR. We look forward to seeing many of you at the Wells Fargo conference next week, and NAREIT in June. With that, we'll close this today. We're always available to take your follow-up calls and take care.

Operator (participant)

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.