UDR, Inc.

Greetings and welcome to UDR's fourth quarter 2020 earnings conference call. At this time, all participants are on a list and only mode. A question and answer session will follow the formal presentation. 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, Director of Investor Relations, Trent Trujillo. Thank you, Mr. Trujillo.

You may begin. 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 during the Q&A session today. I will now turn the call over to UDR's chairman and CEO, Tom Tooney.

Thank you, Trent, and welcome to UDR's fourth quarter 2020 conference call. On the call with me today are Jerry Davis, President, Mike Lacey, Senior Vice President of Operations, and Joe Fisher, Chief Financial Officer, who will discuss our results. Senior officers Harry Alcock, Matt Kozad, and Chris Van Enns will also be available during the Q&A portion of the call. Throughout 2020, UDR was able to actively and successfully combat many of the challenges brought on by the pandemic. This was a direct result of our company's strategies. In particular, our diversified portfolio, the versatility of our next generation operating platform, outsized cash flow appreciation from our 2019 acquisitions, and 2020 capital recycling activities, and the ongoing dedication of our UDR teams. In 2021, maximizing cash flow remains our primary goal. To achieve this goal, we segment growth drivers into what we can and cannot control. Things we can control include the ongoing rollout and successful implementation of our next-generation operating platform, employing dynamic pricing across our portfolio to maximize revenue growth, and utilizing our value creation mechanism, including selling low-cap assets and recycling proceeds into creative uses, such as acquisitions with operational upside and DCP investments. So far this year, these factors have contributed to continued stability in our build revenue and improvement in occupancy and lease rate growth. Mike will provide more color on our operating trends later in the call. The early year results, when combined with the strength of our platform, our diversified portfolio across markets and product types, and our creative approach to capital allocation, allow us to provide 2021 earnings guidance. which Joe will discuss further. As we move forward, we will continue to closely monitor factors that are out of our control. These include the speed in which vaccinations proceed, what this means to cities reopening and emergency regulations, and how these will drive forward rent growth trends. In short, what worked for 2020 should continue to work in 2021. I remain highly confident that we, as an industry and a company, will be better positioned 12 months from now. The path to get there will continue to be slow, but the inevitability of a recovery is just a matter of when, not if, in our minds. Moving on, ESG remains a cornerstone of how we operate our business and invest our capital. Over the past three years, we have dramatically improved how we report our ESG accomplishments to our stakeholders. I'm proud that this was recognized in late 2020 by Grespi, who named UDR a top performer in ESG among global real estate firms. Moving forward, our intent is to continue to refine and improve our ESG goals, while also providing comprehensive metrics to our stakeholders as we share our continued success in the years ahead. Last, I've had the honor to lead UDR's team for 20 years, been active in the apartment industry for 30 years, and have lived through multiple cycles. UDR's team has always risen to the challenge, just as we did in 2020, and will continue to do so in 2021. I'm confident in the direction of our company, what we are actively doing to improve how we conduct business through the next generation operating platform, and our ability to handle any obstacle that comes our way moving forward. With that, the executive team would like to thank all our associates for their dedication and service, unwavering focus on executing our strategy 2020. And in closing, I'm reminded that every year presents its own set of unique challenges, and I'm confident that the UDR's ability to adapt whatever 2021 may bring. With that, I will turn the call over to Mike.

Thanks, Tom. Overall, I'm encouraged by our early 2021 results. Portfolio-wide, traffic, occupancy, and blended lease rate growth are trending in the right direction. However, the timing around widespread vaccination and the resulting reopening of urban areas and relaxation of emergency regulation remains uncertain. Nevertheless, we will continue to leverage our platform to maximize revenue and limit controllable operating expense growth moving forward. The start and stop effect the virus continues to have on business activity in our coastal markets was reflected in cash same-store results during the quarter. Divergence from our previously provided guidance was a result of, first, some markets enforcing stricter COVID restrictions around the holidays, and the lower traffic and higher-than-anticipated concession levels that came with those, and second, a modest decline in collections compared to prior quarters, which aligns with the seasonal pattern we have experienced in the past. As such, with concessions accounted for on a cash basis, year-over-year combined same-store NOI declined by 10.1% year-over-year, driven by a revenue decline of 5.9% and an expense increase of 4.8%. When accounting for concessions on a straight-line basis, Combined same-store revenue declined to more modest 4.5%, with NOI down 8.1%. These results were in line with our guidance. Please see page 4 of our press release for drivers of year-over-year and sequential combined same-store revenue growth during the quarter. Encouragingly, our 2019 acquisition illustrates the operational upside we can realize from integrating our platform. These communities produced sequential revenue growth of 2% from the third quarter to the fourth quarter, compared to a 50 basis point sequential revenue decline for our combined same-store communities. Looking ahead, 2021 has started off on better footing. As a reminder, the key to turning the corner on revenue growth will be sustained traffic, improving occupancy, and reduced concession activity. Positively, our occupancy has grown. Concession usage has started to decline, and we're operating with minimal or no concessions across approximately 65% of our portfolios. Where we are using them, the average concession level has come down to approximately three and a half weeks from four weeks on average during the fourth quarter. Additionally, billed revenue remains relatively stable, a trend that has been evident since August, despite more widespread regulatory measures that impact our business. Billed revenue is one of the major factors that influence our bottom line results, and I'm encouraged by this stability. Combining these year-to-date 2021 factors With favorable occupancy trends, especially in our harder-hit coastal markets, we are now expecting sequential revenue growth to be positive in the first quarter, as suggested by our guidance. Strategically, we continue to focus on maximizing revenue growth by pushing rate growth where we can and driving occupancy where necessary. This property and unit-specific approach to pricing our homes benefited us greatly during the pandemic, and we anticipate this will continue to do so throughout 2021. It's important to recall that higher than typical level of concessions we granted during the third and fourth quarters of 2020 negatively affected our earnings for 2021. Even though we have been able to offer a lower level of concessions thus far in 2021 as compared to recent months, the straight line effect of amortizing what has already been granted serves as a headwind to FFOA growth. As such, we expect the first quarter will bear the brunt of this impact. Joe will provide additional color in his comments. Moving on, page three of our release and attachment 15 of our supplement provide combined sink store growth guidance for the first quarter and full year 2021. Additional high-level context to how we arrived at these factors is as follows. First, 25 to 30% of our NOIs in markets have fewer business and regulatory restrictions and are therefore effectively open. This bucket includes Tampa, Orlando, Nashville, Dallas, Austin, Richmond, Baltimore, and Monterey Peninsula in California. Stable to improving fundamentals and positive 2021 revenue growth is anticipated in these markets due to a combination of occupancy gains and positive affected blended lease rate growth. Concessions across these markets have generally remained in the zero to four-week range since March. And demand remains strong, which has translated into average physical occupancy of over 97%. Because demand and occupancy are high in these markets, we are opportunistically pushing market rent growth where appropriate. This may result in a modest decline in occupancy during the first half of 2021, but it will benefit our future rent roll. Thus far in 2021, we have generated blinded lease rate growth of approximately 3% in these markets, with occupancy averaging 97.3% as of January 31st. Second, roughly 55% of our NOIs in markets that are partially open where fundamentals have likely bottomed and are showing signs of improvement. This bucket includes some of UDR's larger markets, such as Orange County, Seattle, Metropolitan Washington, D.C., and Los Angeles. Concessions across these markets have generally ranged between two to six weeks with occupancy holding steady. Thus far in 2021, we have generated blended lease rate growth of negative one to negative two percent in these markets, with occupancy averaging 96.5% as of January 31st. Last, roughly 15 to 20% of our analyzing urban areas of coastal markets where emergency regulations and additional restrictions on business activities continue to present challenges. These include Manhattan, San Francisco, and downtown Boston. Concessions across these markets continue to average 48 weeks, but we are still seeing competitors offering up to 12 weeks on new leases. Average occupancy across these markets improved from the mid-80% range during the third quarter to nearly 90% during the fourth quarter, but came at a price. Thus far in 2021, we have generated blended lease rate growth of negative 1.5% to negative 2% in these markets, with occupancy averaging 94% as of January 31st. At a high level, we believe widespread vaccination will be the tide that lifts all our ships in 2021, but the timing of when this occurs and therefore when regulatory and business restrictions are a thing of the past, remains difficult to pinpoint. Next, 2020 was a disruptive year in many ways, and with the recent focus on net migration trends within and between markets, it's important to highlight that UDR's 2020 annualized turnover was up only 30 basis points versus 2019. Most of our markets saw stable to improving retention, with the exception of New York, San Francisco, and Boston. Our latest analysis of move-out data in these three markets shows most of our former residents are staying within relatively close proximity to the urban areas they vacated last year. Approximately 70% of our fourth quarter 2020 move-outs in Manhattan, downtown Boston, and San Francisco proper moved within the MSA, comparable to one year ago and significantly better than the third quarter 2020. This suggests coastal markets should rebound once health and safety issues are addressed. Finally, I want to thank my colleagues in the field and here in Denver for their dedication in executing our strategy and adapting to a new environment. The past year has brought a lot of change, and the lessons we learned will help shape how we do business and interact with our residents in the future. And now, I'd like to turn the call over to Jerry.

Thanks, Mike, and good afternoon, everyone. Many of our operating successes in 2020 were driven by the ongoing implementation of our next-generation operating platforms. The platform's self-service components allowed us to stay engaged with our residents, deliver a high level of service and satisfaction throughout the pandemic, and limit controllable operating expense growth to just 20 basis points for the year. Our five-year controllable expenses have averaged growth of 70 basis points, and our improvement in 2020 from already strong expense growth containment reflects a continuation of our constant and consistent focus on driving efficiency in our business. Because this five-year period overlaps with our platform initiatives, the efficiencies we have generated to date are best illustrated after comparing our nominally positive controllable expense growth over this timeframe to more normalized 2.5% to 3% annual wage inflation growth across our markets. We expect to realize additional cost-controlled benefits over the next two years with the full rollout of the first phase of our next-gen operating platform. As you will recall, we began the full rollout phase one of the platform in Nashville and Seattle during the fourth quarter. This encompassed automated self-touring, our new customer service technology, an updated resident app, and headcount reductions, among other things. So far, the results in these two markets are in line to slightly better than our initial expectations. We have realized strong efficiencies by refocusing those markets' workforces on customer service, and the new technology deployed has been widely adopted by residents and prospects, which has proven beneficial to our leasing process and resident satisfaction. Of note, during the fourth quarter, 93% of our company-wide prospect tours were conducted in a self-service or touchless manner. And since the second quarter of 2018, our net promoter score has improved by more than 20%. To date, we have rolled out the full platform 1.0 to six of our 21 markets, with a remainder scheduled throughout 2021. But portfolio-wide, approximately 83% or 400 headcount reductions have already occurred since mid-year 2018 in anticipation of these rollouts. We have seen no discernible evidence of disruptions to operations. To date, we have realized 50% of the benefits of Phase 1 of the NextGen operating platform, which is expected to total $15 to $20 million. As we look ahead, we expect to realize an additional 25% of run rate NOI from the platform by year end 2021 and the remainder in 2022. Moving on, we are working hard on planning Phases 1.5 and 2.0 of the platforms. Primary areas of focus include utilizing more data science to increase resident retention, better directing marketing dollars to optimal sales channels, and making leasing process quicker and easier to complete, to name a few. Post-2022, we anticipate that these objectives should continue to drive margin expansion. Last, many businesses have moved or are in the process of moving toward increased self-service, as preferred by their customer base. UDR and eventually the multifamily business are no different. 2020 was a key year for implementing and proving out many of the technological components of Platform 1.0. But 2021 is the year that we will fully unleash it. A sincere thank you to all of my fellow UDR associates who have embraced this new way of doing business, and I look forward to providing additional updates on our successes in the quarters ahead. With that, I'll turn it over to Joe.

Thank you, Jerry. The topics I will cover today include our fourth quarter results and guidance for the first quarter and full year 2021, a balance sheet and liquidity update, and a summary of recent transactions and capital markets activity. Our fourth quarter FFO is adjusted per share of 49 cents achieved the midpoint of our guidance range and combined same store revenue and NOI growth with concessions reported on a straight line basis. met our guidance expectations. In regards to collections and residential bed debt, in the fourth quarter, we wrote off $3.5 million and reserved $4 million of revenue for a combined $7.5 million, or 2.4%, of residential build revenue. This is based on our assumption of ultimately collecting 97.6% of Q4 revenues, or slightly below the third quarter level of 97.7%. Looking ahead, despite the inherent uncertainty around how the pandemic will impact the economy, the regulatory environment, and our business moving forward, we have provided first quarter and full year 2021 guidance. We anticipate full year FFOA per share to range between $1.88 and $2, with the $1.94 midpoint representing a 5% year-over-year decrease, driven by a year-over-year decrease in straight-line NOI partially offset by accretive financing and transaction activity. We expect full-year 2021 year-over-year combined same-store revenue growth of negative 2.5% to positive 0.5% with concessions on a cash basis and negative 4.5% to negative 1.5% with concessions on a straight-line basis. This difference is due to the residual impact of concessions amortizing during 2021 that were granted in 2020, which, as indicated earlier, will also serve as a relative headwind to FFOA growth until concession amortization tapers. In regards to our first quarter 2021 FFOA midpoint of 47 cents and the 2 cent per share sequential decline, This is being driven primarily by the straight-line effect of amortizing concessions that have previously been granted. Full-year guidance assumes a headwind of 3 to 4 cents from concession amortization with approximately two-thirds of the impact expected to be realized during the first quarter. Additional guidance details, including sources and uses expectations, are available on Attachment 15 and 16E of our supplement. Moving on. Our balance sheet is liquid and fully capable of funding our capital needs due to ongoing efforts to reduce debt costs, extend duration, enhance liquidity, and preserve cash flow. As such, we remain in a position of strength to continue weathering the effects of the pandemic. Some highlights include, first, as of December 31st, our liquidity, as measured by cash and credit facility capacity, net of our commercial paper balance was $958 million. Second, after using a portion of the proceeds from our $350 million, 1.94% green bond issuance in the fourth quarter to prepay additional higher cost debt originally scheduled to mature in 2023 and 2024, we have only $350 million of consolidated debt or less than 2% of enterprise value scheduled to mature through 2024. after excluding principal amortization and amounts on our credit facilities. Please see attachment 4B of our supplement for further details on our debt maturity profile. Third, we remain thoughtful in our capital allocation decisions, largely funding our recent acquisition and DCP activity through property sales and the proceeds from our previously issued board equity sales agreements. Our identified net uses of capital remain minimal and predominantly consists of funding our $491 million development pipeline, which is less than 3% of enterprise value and is over 50% funded with approximately $244 million of remaining capital to spend over the next several years. Fourth, our dividend remains secure and is well covered by cash flow from operations. Based on the 2021 AFFO per share midpoint of $1.76, our dividend payout ratio is forecasted to be 82%, resulting in an approximately $100 million of annualized free cash flow after accounting for dividend payments. Last, as is evident on attachment 4C of our supplement, we continue to have substantial capacity under our line of credit and unsecured bond covenants. As of quarter end, our consolidated financial leverage was 35% on the undepreciated book value, and 31% on enterprise value, inclusive of joint ventures. Net debt to EBITDA RE was 6.8 times on both a consolidated basis and inclusive of joint ventures. Taken together, our balance sheet, our liquidity position is strong, and our forward sources and uses remain very manageable, as is detailed on attachment 15 of our supplement. Next, a transactions update. From a thematic perspective and irrespective of the macro environment, we continue to believe that our platform and other operating initiatives help us to generate outsized returns while paying market prices for acquisitions. Funding these acquisitions by selling assets that are attractive to private market buyers but potentially less platform-centric in some cases only serves to enhance this accretion. Our fourth quarter 2020 and first quarter 2021 acquisitions And Tampa, suburban Washington, DC, and suburban Boston are perfect examples of this trading approach. And we continue to evaluate additional opportunities to create value. Some highlights include, first, during the fourth quarter and first quarter to date, we sold or are under contract to sell three communities, one each in Washington, DC, Orange County, and Los Angeles. Proceeds total approximately $316 million at share, reflect a low 4% weighted average cap rate, and with the sale of all of DTLA in Los Angeles, we have wound down our West Coast Development Joint Venture. Second, during the fourth quarter and first quarter to date, we acquired three communities, one each in Washington, D.C., Tampa, and Boston, for a combined $328 million. All three communities are expected to generate outsized returns once fully integrated onto our platform, with the weighted average yield projected to increase from 4.6% in year one to 5.3% in year three. Third, subsequent to quarter end, we committed to fund a $30 million DCP investment for a development community in suburban Washington, D.C. at a 9% yield and with profit participation upon a liquidity event. which we expect to occur in approximately five years. The development is fully capitalized and is proximate to two other UDR communities. Please refer to yesterday's release for additional details on recent transactions. With that, I will open it up for Q&A. Operator?

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. As a reminder, we ask that you please limit to one question and one follow-up. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Nick Joseph with Citi. Please proceed with your question.

Thanks. I appreciate the comments on the operating platform and dynamic pricing. I'm just wondering, as you think about markets like Manhattan or San Francisco or downtown Boston, which I think you heard where they're challenged 15% to 20%, Do you see the benefits from those given the disruption currently from concession activity, or do you get more of that benefit when the market's more stabilized, you know, and acting more normally? Just trying to see how those benefits roll through when the market's really getting disrupted.

Hey, Nick. It's Mike here. Last year at the city conference, we were able to present what we saw with some of the dynamic pricing and using some of the heat maps and over the last three or four months are made to high-rise assets, so it has benefited us quite a bit over the last few months, just in terms of optimizing our rent and occupancy within those markets.

Yeah, I would add, Nick, this is Jerry. It's probably got more benefit today on the stabilized suburban markets, especially in the Sunbelt. When you have that much price pressure and concessionary impact from competitors, There's less differentiation based on view and location of the unit. People are just tending to look for the least expensive unit most frequently. So I think you'll see more of that when San Francisco, New York, some of the other urban areas stabilize. There will be more benefit, but I think the biggest benefit to date has been on the suburban.

That makes sense. Thanks. So then just in those migration trends that you're talking about with a lot of those residents maybe staying within the NSA, where are they moving? Are they doubling up? Are they moving back home? And would you expect it to be those residents who actually move back in or that type of resident at least? Or do you think it's going to be a different resident base that ultimately moves back into some of these more urban areas?

I think it's different by market. From what we're seeing today, I'll give you an example, New York City, We're still seeing people moving out closer around, call it Boston, New Jersey, even Connecticut. And we're staying in touch with those residents and just trying to get an idea of when the city starts to open up more, what their intentions are. So a place like that, we do expect that they'll come back. And today we are seeing people come in from outside of the MSA as well. And then when you look at some of our suburban assets down in the Sunbelt, it's a little bit of a different story there.

Our next question comes from Jeff Spector with Bank of America. Please proceed with your question.

Hey, Jeff, you might be on mute.

Can you hear me now?

Yep, you're good.

Wait, sorry about that. Great. Good afternoon. Thanks for taking my questions. Wanted to circle back to Mike's initial comments. on Manhattan, San Fran, Boston, improved occupancy, but it came at a price. And then, again, the discussion on 70% estate within the MSA. Specifically on Manhattan, what are you seeing there? I think you just commented that you're staying in touch with these people to see what their intentions are. I guess in the last month or two, Have you started to see some of those younger millennials, Gen Z, start to come back to Manhattan specifically or not yet?

To some degree. We're starting to see it more on our traffic patterns. So our traffic has increased, I would say, over the last 30 to 60 days. A big piece of that was the fact that we started using our brokers a little bit more within Manhattan versus It's called a San Francisco. It's just we found a little bit more success there. And so we were able to capture a little bit more incremental demand from, I think, people from within that market looking for a deal or maybe trying to move into a place that they couldn't necessarily afford before, and they can now.

Okay, thank you. And then my follow-up is just on acquisitions. I think you're guiding to a minimal amount. Everyone's talking about the Sun Belt. But, you know, there's a lot of supply there. Just thinking about taking a contrarian view back to Manhattan, let's say, or San Francisco, you know, are you seeing any distress opportunities for UDR to strike, you know, in 21?

Yeah. Hey, Jeff. Good morning. It's Joe. I'd say at this point really not seeing the distressed opportunities. Generally speaking, the only area that we saw distress kind of coming through this has been up on the DCP side, where you did see us do an investment there in the quarter, another $30 million in suburban Virginia. That really is just due to the pullback that you saw in construction financing, MES financing, equity financing for developments. At the end of the day, I think we're stabilized assets. You know, the GSEs as well as other financing sources remain available. Proceeds may come down a little bit. coverage issues in some of those urban high-rise markets might give a little bit more stress from a coverage perspective, but overall not really seeing any signs of distress, I think. Generally speaking, the urban high-rise product pricing might be off 5% to 10% relative to pre-COVID, but overall not seeing the distress come through.

And, Jeff, this is Harry. I'll just add on. I think I'd say generally in the core of the deals, while there hasn't been a tremendous number of trades, to form a definitive opinion. Pricing has likely hit bottom and possibly has even started to rebound. Buyers are no longer trading on cap rates, really are trading relative to replacement costs, and replacement costs continues to increase.

Great. Thank you.

Our next question comes from the line of Nick Ulico with Scotiabank. Please proceed with your questions.

Hi, good afternoon. This is Sumit here for NIC. I've got two questions. One, your San Francisco new lease rate fell by about 3% year-over-year, which is pretty good compared to some of your peers, as well as some of the market reports. And physical occupancy was up 410 basis points, Q over Q. So overall, I'm trying to sort of reconcile this against the revenue per occupied unit, which declined 9% Q over Q. I guess, was there a lower impact to economic occupancy in San Francisco in particular, or were there other elements that drove the sequential decline versus the improved rate performance? Is it a mixed issue of some sort?

Sure. Great question. This is Mike. First, just put in context, San Francisco makes up about 9% of our NOI. We have 40% of our properties, urban 60%, suburban. We are seeing market rents, especially in that urban area, down 10 to negative 18%. And in our suburban assets, it's closer to flat to down 5%. I'll tell you the biggest difference on sign-new leases is where we have higher vacancy. So during the fourth quarter, for example, down in the city and SOMA area, We were closer to 83% occupied versus the peninsula where we ran closer to 95%. So as you can see that you're sitting on more vacancy in the areas where you have more of depressed rents compared to where we had a little bit more pricing power. So it goes back to our asset by asset strategy all along, just trying to make sure that we're optimizing total revenue. And San Francisco is a very good example of that. And I'll tell you the answer to your second question. as it relates to our growth, the biggest piece is in that economic occupancy. And so, again, if you look at the second quarter, it was down about 1,000 basis points on a year-over-year basis. And this market is also one that's historically been our strongest when it comes to other income growth through initiatives and things like that, whether it's the short-term furnished program, amenity rentals, it was fee income was down about 11% because we just weren't able to do a lot of things that we're accustomed to doing. And again, the last piece I'd point to is that urban-suburban piece of the equation when you look at San Francisco.

Got it, got it. Thank you for the color on that. We'll probably take that offline as to what's in the fee income. Always want to know whether there's some sort of app that you guys use to control the AC, but that's a different question. Moving ahead to like, I guess, asset sales. On the West Coast Development JV, you guys had a fixed price option on Olive, at least based on something you said in 2018. And you chose to sell it. And I apologize for the background noise. That's my four-year-old. Sorry about that. But with DCP, you stated that you're always looking for these assets that you'd like to own and submarkets that you'd like to be in. So, What made Olive less platform-centric? Just curious to understand what the pricing terms were pre-COVID or whether it is a push to reduce exposure to urban LA and such markets. Or is it something about the asset?

This is Harry. The decision was made primarily around asset pricing. And so from our perspective – At the price in which the asset was going to sell in the market, we chose to be a seller based purely on asset pricing. And I can tell you that, you know, with the sale of DTLA and now Parallel, we've wrapped up the Wolf JV that we did in two phases in 2015 and 2017. Of the seven total properties, we ended up owning three and selling four. And, again, we were just entirely rational in our thinking about what to buy and what to sell. We achieved an unlevered IRR of 11% on our total of $260 million in capital invested, which is at or above our expectations. In parallel, in Anaheim that we're going to sell, we actually sold it for, call it 20%, above the price at which we bought out Wolf in 2019. So that ended up being a good trade as well.

Thank you so much for the call, guys.

Our next question comes from Austin Werschnitz with KeyBank Capital Markets. Please proceed with your question.

Hi. Thanks, everybody. So, appreciated all the detail you had on the preferences for pushing rate in some of your markets that are a little more stabilized and as well as the challenges that others are still facing, you know, predominantly those coastal markets. You did mention it's more if and when the recovery occurs in some of those those challenge markets. So I guess what did you incorporate in terms of your guidance as far as a recovery in the coastal markets, from a timing perspective, given all the uncertainty and, and do you think or did you assume that that leaking spreads across the portfolio can turn positive some point in the back half the year?

Yeah, hey, Austin, so maybe I'll kick it off with a High-level comment just in terms of how we formed the same-store NOI guidance and FFOA guidance overall. Then Mike can kind of take you through some of the specifics. When you look at that same-store NOI cash guidance range of flat to minus 4%, if you just utilize 4Q of 20 as the starting point, to go to that low end of minus 4% NOI, all you need to see is NOI stay static relative to 4Q of 20. So basically no improvement from 4Q all the way through 4Q of 21. gets you to the low end of our range, that minus 4% year over year. To get to that midpoint of minus 2, basically a 2% lift, meaning we have to average about 2% better than where we were at in 4Q. The sequence of that, we've run through a number of different scenarios. Obviously, you have a piece of the port stable and improving, a piece that's in that 20%, but we've run through a number of different scenarios as to when that starts to lift based on vaccinations and reopenings and feel pretty comfortable that it's a pretty good midpoint to put out there at this point.

Yeah, awesome. This is Mike. I would add, obviously, the cadence of market reopening dictates those results, but what we're seeing right now is promising, and we expect that traffic will start to return kind of in that 2Q timeframe in places like New York and Boston, and probably traffic starts returning in 3Q, maybe into 4Q for San Francisco, and results will follow those trends.

That's really helpful. Appreciate that. And then just one on the acquisitions. which you did highlight, you know, these are some older vintage kind of higher yielding deals predominantly. What are you assuming in terms of, you know, a capital plan or incremental dollars to get invested to drive that yield over the next couple of years? You know, how should we think about that trending? And then, you know, how do you think about, I guess, the recurring CapEx piece to buying and owning some of these older assets versus selling maybe some of the newer stuff that's a lower cap rate today.

This is Harry Allstarten, and Joe may jump on. But in terms of the capital spent, of the three assets we acquired, one was brand new, coming out of lease up. It was located next to another UDR property, so we were able to benefit from the platform upside on that one. The other two, one's 15 years old in Boston, will spend about $16,000 a unit, so that will help. For year one, the more year two and year three, and likewise the Tampa acquisition, we're going to spend about $10,000 a unit on that. So there will be some minor carrying of deferred maintenance in addition to a little bit of return capex. I think they have a little bit of upside, but that's why 4.6% in year one and we'll be up over 5% in the second year. In terms of recurring cap backs, I think when we buy these assets, we do cure deferred maintenance and put them back into position so that we can own them for 20 years with sort of a normalized capital spend trajectory so that, in effect, the capital we spend up front goes into the purchase price and our initial yield, and that allows us to manage recurring capex going forward.

Yeah, and Austin, just to give a little bit more commentary on the yields as well, I want to make clear that while we have capital plans for the assets and we get a return on that capital, you also have a lot of lift in that NOI stream coming just from pure blocking and tackling the initiatives and then the overlay of the platform. So, Relative to the private market operators, you know, in year one we get about a 5% lift, ignoring the influence of market rent growth. And then from there on, as we continue to lay on the platform plus CapEx, you get another 5% plus. So we typically see about a 10% lift over time between ops and capital plans on these new acquisitions.

Yeah, one last thing, this is Jerry. Okay. You know, the Tampa deal, which I believe is the one you're probably referring to, it's over 600 units. It was really two properties that were run separately that are getting merged together. But day one, we went in with platform staffing levels because we were rolling our Tampa market in at that exact same time. You know, we're in the process right now of putting in smart home technology to enhance it even further. But, you know, I mean, we went from about 12 FTEs down to about eight FTEs. at that community. As Harry said, you know, you're right to look at some of those older markets and the Sun Belt and think about CapEx, but we're doing HVAC replacements throughout that community, which is one of the big burdens that hits that. There's a paint job, wood replacement that can also impact it. So I think what Harry said is right. I feel good about that property's CapEx spend over the next 10 years. It'll be just like a fairly new property. And, you know, as they said, there's a couple of new acquisitions. The one at D.C. kind of offsets it. We have new development that continues to benefit us on the CapEx side going forward. So when you sprinkle in some of these older assets like this one, Rogers Forge or Windsor Gardens that we got last year and addressed it with initial capital expenditures, Most of that's been cured, so I don't think you're going to see a pop if we continue to buy these things and take care of them at times of acquisition in our recurring capex.

That's all very helpful. Thank you.

Our next question comes in the line of Rich Hill with Morgan Stanley. Please proceed with your question. Hey, good afternoon, guys.

Joe, you do something that I really appreciate, which is report numbers or metrics on a cash and gap basis. And so I think you're in a unique position to maybe help me and others think about how these metrics might trend into late 21, into early 22, and maybe even beyond that. So as we think about it on a cash basis, is it fair to say that that the concessions that were made in 20 will become pretty material headwinds or tailwinds, excuse me, in late 21 into early 22. But then there is a scenario in later 22 where any growth is primarily going to be driven by base minimum rent growth rather than the concessionary impacts or lack thereof.

Yep. I got you, Rich. Yeah, I think that's generally a fair statement. So as you look at the concessions granted in 2020, as of year end, we had about a $20 million straight line asset that needs to be amortized over time. We think net-net the headwind relative to 4Q is about a, call it, three to four penny headwind as we work our way throughout 2021. So you have kind of cash underperforming gap here in 4Q and throughout 2020. We start to cross over in first quarter of 21. Those will effectively level out, and you get a crossover point between new concessions granted and those that have been amortized. And then you start to revert as you go through into the back half of the year where cash starts to outperform GAAP. And that's really the strategy that Mike and team have been employing throughout and talking about a lot about in terms of if you believe there's a recovery that's going to take place, well, you take the upfront concessions, you keep the face rate higher, And that helps reduce the revenue growth on the back end, helps to renew off a higher number on the back end. So you should see that start to drive relative performance here as we go into the back half.

Got it. That was sort of a lead-in to my next question. You know, we noted that your effective lease growth in January, correct if I'm wrong, turned positive, which is a pretty interesting indicator, at least relative to your peers. So as you think about your diversified portfolio across geographies and quality, how do you think that sets you up to push rents, true rents, not effective rents? Because, you know, we've been, you know, I think I'm hopeful there will be a time in the not-too-distant future where we can think about true rents again. How do you think that positions you to, you know, outgrow, you know, for lack of a better term, your peers?

Hey, Rich, it's Mike. I think it puts us in a good position. And as Joe alluded to, that's something we've been focused on for quite some time. And I'll tell you, over the last three months, we've seen sequential market rent growth in our portfolio. And a lot of that has to do with trying to find those pockets where we do have high occupancy and we can start to push our market rents a little bit because obviously that helps on the renewal side too. And so we're starting to see some promising signs with what we're sending out for renewal going forward. And again, kind of where our market rents are today. And it does vary market by market, but it goes back to that asset by asset approach, and I think it's starting to pay dividends.

Got it. I think that's all I have, guys. I'll follow up offline with any additional questions. Thanks, and nice quarter in print. Thanks, Rich.

Our next question comes from the line of Rich Hightower with Evercore. Please proceed with your question.

Hey, guys. Appreciate all the valuable colors so far. Just maybe to get back to these questions on the urban core for a second, but I guess, you know, to the extent that you did see increased demand and traffic, you know, as the fourth quarter went on and year to date 21, is there anything about the composition of those, you know, the unit mix, you know, in terms of what's leasing up a little faster that might give us an indication of who's actually moving into the cities and where they're coming from and what their motivation is, other than just rents being low. Is there anything about studios versus one-bedrooms and so forth that might fill out the picture there?

Hey, Rich, it's Mike. Yeah, we're seeing very similar trends to what we've talked about in the last couple of quarters, quarterly earning calls, and that's our studios are a little bit less occupied than what we're typically seeing. in regular cycles. So nothing really different from that end. I will tell you though, one thing that helped us out probably more than anything over the fourth quarter is when you look at our tours, and you look at how many were guided or self guided and all the things that Jerry and the team have done for the platform, less than 7% of our tours were guided. So the fact that we were able to just get more traffic through the door and really accommodate them, we were able to push where we otherwise couldn't. So, that's about it on that side.

Okay. I appreciate that, Mike. And then, you know, maybe just a little bit bigger picture question, again, sticking to the sort of the more troubled urban core markets. But, you know, every few days and, you know, yesterday was another one, you know, you see some corporate announcement about, you know, sort of a permanent, you know, work from home or, you know, remote workforce. from some large company. You know, they seem to be predominantly located on the West Coast, but not always. You know, at what point do we sort of tally up those anecdotes and maybe change our longer-term view about, you know, what growth should be in the European core, what cap rates should be, you know, how we should underwrite, you know, just along those lines, if you don't mind commenting.

Yeah, there you go. We see all those same headlines. We're doing a lot of work on the qualitative side within Port Strat, thinking about things like the business friendliness, the migration of these incomes, where they may ultimately go. I think, you know, the Google announcement, yeah, the headline perhaps read negatively, but I think as you go through it, it seemed that it's much more the anchored to a office approach, which is majority of individuals continue to come in two to three days a week, There's some that will never come in again if they're fully remote and aren't in a location that has a office. But I think our approach and thought process throughout this will be we'll return to some degree of normalcy where most employees will be anchored to an office for a set amount of time. One day, two days, three days, or five days, whatever it may be. So that will impact, obviously, how you think about commute times and locations and submarkets within those MSAs. But it is kind of a rising tide list all ships or sinks all ships. So To the extent that you can work from home more, maybe that is beneficial to the suburbs on a temporary basis. But over time, it's going to come back to are these knowledge-based economy drivers, meaning are the technology companies going to remain based to a high degree within those markets? Are the finance companies going to stay based to a high degree out in New York and Boston, the life sciences of the world? Are they going to be there and are they going to help drive income growth over time and I think we believe they ultimately will. That bias is towards these markets need to remain in our portfolio. Right now, they're probably not the markets that we're trying to tilt additional capital towards. As you've seen through our disposition strategy, we've generally taken more dollars out of those markets than into those markets. But I think those markets long-term have viability. We're not going to rush to the doors and try to exit at this point.

Got it. Thanks, Jeff.

Our next question comes from the line of Neil Malkin with Capital One Security. Please just stay with your question.

Hey, guys. Thanks. Good afternoon. Thanks for taking the question. I guess maybe a continuation on the previous question, maybe for Joe or Mr. Van Enns. You know, you look at maybe the Biden administration and potential risks there, slower rollout of the vaccine, companies pushing their, you know, kind of back to work from, July timeframe to September, October. And then also the migratory patterns you mentioned with the work from home. I mean, you guys seem to be hesitant on, you know, if you're going to make a call on a shift from the coastal market. But I just wonder when you kind of look at everything in the portfolio strategy, you know, column, are you, you know, do you see this cycle or at least, you know, next couple of years, you know, shifting from, you know, selling, you know, pack rates that are very depressed in coastal markets, urban markets, and moving those to the Tampas, Nashvilles, you know, of the world, potentially other markets that have those similar attributes where you're seeing all the out migration flow to. Is that a, you know, I mean, are you thinking about those, that sort of allocation going forward?

This is to me, you know, I'll let Joe and Chris add on to it, but my sense about this is first and foremost, You're right in the middle of a storm, and to try to navigate a different path in the middle of a storm usually means a wreck. So I don't see us adjusting while this is still unsettled where we would adjust any of our capital deployment strategy. We have a pretty simple game plan. Buy the one next door, overlay the platform, we make money. So we'll stay with that while the storm's occurring. We can debate for hours. all of us with respect to what's the long-term implications of COVID might have with respect to work, our lifestyles, and all of those. And what I'd characterize it as is this. People in the short term will do everything they can to accommodate their workforce, their customer, and their business and have done so. That doesn't necessarily provide a long term. For example, if you're growing young talent in your thriving dynamic business, it is really hard to do so in a Zoom setting. It is hard to become creative if you've been sitting on a Zoom call for eight hours, as an example. So the desire to be back together, I see as many surveys talking about businesses working from home, and Joe covered the tethered to office element of it, and I see just as many saying we really want to get back in the office. Colorado today is back at 50%. Frankly, there's a great deal of energy in the building at 50%, walking up and down the hall, seeing people, checking back in with them. And while we're talking to them every week, Zoom, there's a difference when you see them in person. And I think when businesses get back to having that dilemma of 50%, 25%, they're going to say, heck, we're having a lot more fun together at 50%. Why don't we go to 75%? And the power resides predominantly with the employer to set the tone while listening to their associates and their customers. And so I just think that to make this call in the next six months is foolish. We'll wait and see how it plays out. I do remind myself quite often New York is the finance capital of the world. San Francisco is the technology innovation of the world. Both are critical to a long, vibrant society growing. As a result, those cities are going to come back. Pace, I remember 2000 when we had 9-11 and no one was going to end up in lower Manhattan. I thought it would take three years. It took seven. Maybe I didn't get the timing right, but the end result was they came back and in great numbers. This same thing will happen with post-COVID. Sorry about the long answer.

No, no, that's long is good. I appreciate that, Tom. The other one I had is on the development opportunities. You kind of mentioned some DCP or alluded to DCP opportunities or distress, but on the on-balance sheet side, are you seeing any deals come to market, land deals falling out or maybe shovel-ready products, sorry, shovel-ready projects where you had, you know, a capital partner pull out or something. Are you seeing those opportunities, you know, potentially a pre-purchase buyout and anything like that, just given the more dislocation for the development in multifamily today?

Well, this is Harry. We're not seeing too much of that. And, I mean, you're seeing construction starts continuing at a fairly high level around the country. There is not a tremendous amount of distress. It's taking longer for developers to put their capital stack together. In some cases, they are struggling with the overall economics, but I'll tell you the land sellers by and large are allowing the developers to extend contracts and that type of thing. The developers are trying to hang on to those land parcels wherever possible, and so we're not seeing a lot of that type of activity right now. I mean, we do have some land parcels within our existing portfolio that we expect to start over the course of the next year or so. We'll start another phase of the Truvian. We've got a land parcel in Tampa tied up across the street from Slade that we acquired last year. We have another phase in the property in Alexandria, Virginia that we should start late this year or early next where we'll add 300 units to an existing property. So again, a lot of our development starts will also allow us to implement the benefits of our platform as well.

Appreciate it. Thank you. Our next question comes from the line of John Kim with BMO Capital Markets. Please introduce your questions.

Thank you. I'm here with Juan. You raised unsecured funds at 1.9% back in November. Back then, your stock was trading... north of a five implied cap rate. And you didn't really have that same disparity in the cost of debt for equity with industrial data center rates at the time. But can you just share any color that you have on how bondholders value your cash flows and that risk versus equity markets, other than just being more focused on risks versus growth?

Yep. Hey, John, it's Joe. Yeah, in terms of the balance sheet, I think we've done a lot of work both pre-COVID and during COVID to continue to enhance our credit profile. Obviously, throughout the cycle, we target lower metrics, such as kind of the five to six times debt to EBITDA, so that in times of distress, we do have the ability to withstand downturns such as this and continue to maintain a high-quality cost of capital, maintain the BBB+, BAA ratings. And so, yeah, I think when our debt holders look at that, They look at, one, we are in a sector that, by and large, has weathered the storm quite well. And from an asset value and capital flow standpoint, it continues to hold up quite well. When they look at our metrics, while a lot of individuals get hung up on debt to EBITDA, a lot of our metrics are doing fantastic relative to where they've been the last several years. So when you look at three-year liquidity, look at duration, fixed charge coverage ratio, unencumbered NOI, you kind of go down the list, and we've improved a lot of these metrics. and especially when we do these refis and prepays as we did earlier this year, the ability to lock in 2% debt for an extended period of time to scout higher-cost debt and improve the cash flow growth profile of the company helps as well. So I think overall there is a scarcity of locations that you can go for high-quality yield, and so debt investors are generally attracted to us on a relative basis. From an equity perspective, I think you're seeing coming out of last quarter's call exactly what equity investors have been waiting for for multi. It's really about the rate of change. Since last quarter, ourselves and the sector have traded quite well as we've gotten closer and closer to the bottom and or that level of stability. I think Mike's commentary on the stability and what we've kind of put out there for guidance of some improvement relative to 4Q run rate is kind of what the investors have been waiting for. So I think that's likely true. kind of some of the disconnect, if you will, where we were historically versus where we're at today.

The modern market got it correct. My second question is on the concessionaire environment. Just a follow-up from what you discussed earlier, but you discussed today and also a quarter ago that the market in New York, San Francisco, Boston was four to eight weeks of concessions. Since then, you've built up a lot of occupancy in those markets. But other than New York, your new lease rates in San Francisco and Boston don't really reflect that you're offering concessions. So I'm wondering, is this just a timing issue? We're going to see that new lease growth reflected going forward, or are you not offering incentives in those markets?

No, it varies by market. So let's take Boston, for example. We went through San Francisco, and I'll come back to that one, Buck. For Boston, for us, again, this is about 12% of our NOI. In this market, 70% of our NOI comes from suburban assets versus 30% down in the urban area. So in the urban area, we are still seeing concessions around, but that 70% we're still offering between a year and four weeks, and we're having higher occupancy there and not as much of, coming through. So I think you'll see some come later as that market starts to bounce, especially in that urban area. And that goes to what I said with San Francisco as well. Today, we're closer to 90% in the urban area. First, the suburbs were over 95%. If and when those start to bounce back and depending on how much our market rents grow in the meantime, will depend on where our new lease growth ends up.

Okay, thank you. Our next question comes from the line of Amanda Schweitzer with Baird. Please proceed with your question.

Great, thanks. Following up on your guidance for the four-year, what level of bad debt are you assuming in four-year guidance, and then does that change as the year progresses? And then finally, I recognize it's early, but have you started to see a seasonal uptick in collections as you've gone through February?

Hey, Amanda, it's Joe. we aren't really going to get into the granularity of assumptions underlying that REV and NOI guidance, just given the number of levers that can be pulled between occupancy rates, et cetera. So I do think it's fair to assume, however, that you do start to see an improvement in bad debt and write-offs as you move through the year. So we'd like to start a little bit lower on collections and move higher. At the end of the day, what matters the most here is that we reopen the markets and put people back to work. And once you have income coming into their pockets, either through a job, additional stimulus, additional unemployment, or tax refunds. Hopefully we see some improvement in that collection data. In terms of February trends, February trends are really mirroring what we're seeing in November, December, January at this point. So really no tick higher, staying on pace with what we saw previously.

Thanks, Joe. That's it for me.

Our next question comes in the line of Rob Stevenson with Jannie Montgomery Scott. Please proceed with your question.

Good afternoon, guys. Joe, the 1% to 4% savings for expense guidance is pretty wide, especially given Jerry's commentary about savings from the operating platform rollout. What pushes you to the top and bottom ends of that range?

Yep. Maybe I'll hit on a couple areas on the non-controllable side, and I can talk to some of the controllables. On the non-controllable, you have real estate tax obviously being a big component of those numbers. When you look at the valuations that we've received to date, we're right around 60% or so in terms of valuations being locked in for this year. On rates, about 35%. So there is still a degree of variability out there. I think the markets probably that you're most concerned on would be those that have lower income tax rates. So Texas, we don't have much info yet. Virginia. So there's a couple areas there as well as rates in the state of California that we're waiting on. So that could push up or down. Insurance is always a wild card. We know our renewal on the premiums, which is up about 20% for 2021. So we know that number, but about half of the insurance line item is typically claims activity. So that can always be somewhat volatile. And Mike on the controllable side probably has some details for you.

Yeah, on the controllable side, I think you can expect to see similar to what you've seen in the last couple years from us. Our cost control is in a good place based on what we're doing with the platform and how we're trending as far as markets transitioning, headcount reduction, things of that nature. So I would expect our controllable operating numbers to be very similar to what you saw out of us from 2020.

What was the peak driver of the 12% repairs and maintenance bump?

It's really outsourcing. So when you look at it, you know, you saw personnel go down a commensurate amount. So on a blended basis between those two, they had negative growth when you would have expected some level of inflationary growth. So it's really, you know, outsourcing of maintenance functions for the most part.

Hey, Rob, one other area of expenses to keep an eye on as we move throughout the year is going to be the eviction cost and legal cost. Our intent remains to continue to work with all residents that are willing to work with us that have been negatively impacted. But as we go through the year and you see some of the regulatory restrictions potentially be lifted, if those residents don't want to get on the payment plans, don't want to make good on their contractual commitments, then we'll likely have to move forward with eviction processes, and that could result in additional expenses. That said, you're hopefully picking it up on the revenue line item by getting a non-payer out of that unit. and bringing in some cash flow.

Okay. And the other question for me is, any reason to believe that turnover won't be in the sort of 48 plus or minus percent range that you've been averaging the last few years? And if it changes dramatically from that, how far does it have to go before it really starts impacting you guys on an FFO per share basis?

I think it's still too early to tell exactly where the turnover is going to go, but I will tell you over the last 30, 50 days, we have seen, again, that mass exodus. It's not there anymore in some of these major markets, so we do have some signs that it's getting better.

Okay, and from an FFO impact rate, used to be 200 to 300 basis points would, you know, result in something like a penny to you guys. Is that still ballpark?

Yeah, that's probably right. You know, when you think about it, the average cost of a turn is plus or minus $3,000 when you factor in vacancy loss differential, and new versus renewal rate growth and term cost. So 1% increase on a 50,000 plus unit portfolio is about $1.5 million. So 2% would be about a penny.

All right. Thanks, guys. Appreciate it.

Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your questions.

Hey, and good afternoon. Thank you. I'll be I'll be quick in this. So two questions here. First, how are you thinking about or not? How are you thinking about that? As you guys are talking to your residents who move out, you know, in the March to June expiration, how far out are you going with them? So are you talking to the ones who are expiring in like April, May, June? And do you have a sense for how many are going to renew versus how many move out?

So we're talking to more recently, people have moved out probably over the last four or five months. They're a little bit more apt to tell us kind of where they're at and where they're planning on going. And we don't know necessarily what that percentage is going to equate to when it comes to future occupancy today. But we are getting a sense that people are sticking around the hoop, if you will, and they will be returning if and when their employers tell them to come back.

Right, but the point is that your expirations for those months, the upcoming months, you don't have a sense for who's staying and who's going to let their unit last.

Yeah, so we actually, as it relates to our lease expirations, we move some of that around. So what you'll see from us in the first quarter, it's a little bit lower than what we've historically had, and by the time we get to 2-2 and 3-2, it starts to inch up a little bit more, and it It kind of goes in parallel with what we expect with traffic coming in, and those are the people that we're trying to target to get them into a unit, and we're trying to source what they're looking for, where they want to live, and work with them in parallel with our incoming prospects.

Okay, so basically you're just trying to hope that, you know, manage that the move-ins match the move-outs, but right now you don't have a check for who's going to move. Okay, got it. And then the second question is, in your leases that are expiring the first half of this year, Do you know how much above market those are?

You know, I don't have that number in front of me, but I would go back to what I said earlier with three months of sequential market rent growth. We've had about 12 months of a gain to lease, and we're very close to crossing over and showing a loss to lease, if that helps.

Okay. Thank you. If you just think of the comps that we're facing, Alex, you had closer to minus three to four good months, obviously, in 2020. Okay. So that should tell you that you're underwater there for the first three or four months, and then hopefully we're hitting the crossover point sometime in 2Q when we're talking to you on the 1Q call.

But, Joe, that's obviously portfolio-wide. I'm assuming, you know, the real focus market, the big three, that is still going to be a gain to least, correct? Not a loss to least.

In the foreseeable future, yes.

Okay, cool. Thank you. Thanks, Alex.

Our next question comes from the line of John Palowski with Green Street Advisors. Please proceed with your question.

Thanks for keeping the call, Ronnie. Just a quick one on Los Angeles. Occupancy and rate were pretty weak sequentially. Mike, any color in terms of traffic or lease cancellations, lease breakages in L.A.?

Sure, John. That market, as you know, it's only about 3% of our total N.O.I., And it's heavily focused in that Marina Del Rey area. So what we're experiencing there is a little bit of weakness, but I'll tell you over the last 30 days, that's another one where we've seen traffic bounce back a little bit. We've had to go upwards of four to six weeks on concessions to try to drive some of that demand. And then down when you get into the city area, still seeing heat leaks and occupancy levels still around 90% to 92%. So a little bit different there.

I'll say too, John, just in terms of collections activity, LA is probably the biggest outlier within the portfolio. It does have the California overlay from a regulatory standpoint, which is very resident-friendly, but also the city and county overlays that are very resident-friendly. So collections there in the amount of what we would call squatters are exponentially higher than the rest of the portfolio. So collections are somewhere in the 87, 88 range. And so despite it being – probably our ninth or tenth largest market from a reserve and bad debt perspective. It's sitting there in the top five. So it is difficult in that respect, but also hopefully gives us some hope to get those people back to work with some of the regular restrictions down the road. Hopefully we start to get some of that back.

Yep, understood. And then, Mike, I wanted to pick up on your comments about the mass exodus getting better in some of these hard-hit markets. Can you just take – With zoning on San Francisco, you know, just in terms of the lease breakages, you know, a scale of 1 to 10, 10 being peak COVID, everybody's getting the heck out of the city, and 1 being prior to COVID, everything's fine. Like, where are we on this mass exodus type of dynamic?

I would say closer to a 6, and we were probably at 8 or 9 about 60 days ago. And I think that's what you saw. when you look at our makeup of our revenue growth during the quarter, our other income was actually positive, and that had to do with transfer and relapse fees and places like that where we saw just an uptick in people dropping keys and paying us totals. We have seen that come down in the last 30 to 60 days.

Okay. Thank you for your time.

Our next question comes from the line of Dennis McGill with Zelman and Associates. Please proceed with your question.

Hi, Griffin. Thanks for taking the question. I want to go back to that same point that's been brought up a couple times. The 70% that moved out stayed within the MSA in those urban areas. And the interesting part for me is that it was pretty stable on a year-over-year basis. But you are hearing from others that have more suburban portfolios, whether it be multifamily or single-family rentals, that application volume from out-of-state coming into their markets. It just seems like you have a unique perspective to be able to look at both sides of that. So can you maybe round that out to help us understand how much of the rhetoric around state-to-state moves is real as you see in your data and how much of it is maybe exaggerated a bit?

Yeah, I'll give you a little bit more coverage. We did talk a lot about move-outs and we haven't really talked about prospects and move-ins. Just to give you a little bit more color on that, we saw about 23% coming from outside of the MSA. And in places like Nashville, Texas, Florida, Denver, it was closer to 30% where we experienced people coming from outside of the MSA. And that compares to about 20% the year prior. And I tell you, for us, the one that jumped out to me is D.C. We saw the highest number of people coming from outside of the MSA, and it was pushing close to 40%.

How do you square that with some of the data that would indicate that those that are leaving your properties aren't leaving the metro? Where are the people coming from that are going into the metros where you're seeing that big year-over-year spike?

Very different data. The move-out data from the people that we're seeing are residents and where they're going. They have to provide us very detailed information on where their address is so we can send them kind of the final account statement. So Very accurate information. As far as the people coming in, it's a little bit harder to understand exactly where they're coming from because they don't have to provide you that information. So we're looking at things like our Google analytics to understand our prospects as well as the data that we are able to get from incoming move-ins. And so it's a little bit easier to give the move-out data because, again, that's pretty hard concrete data versus the move-ins.

Yeah, I realize it's difficult to triangulate it, but I appreciate the perspective. And just a quick one, Joe, just for comparison points. Historically, all the same store measures that we would have been provided in the supplements and so forth, would that have been on a cash basis?

Yep, correct. Historically, we provided cash and had minimal differentials, obviously, between the two, but in the highly concessionary, we're in a little bit of a delta.

Okay, perfect. Thank you, guys.

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

Let me begin by thanking you for your time and interest in UDR. We strongly believe that COVID will end just as other crises and challenges have as well. The pace of the recovery, though, is out of our control. The promising signs is the vaccination rate going from 1.4 million per day two weeks ago to 2.4 million today. Vaccination production in March looks to be over 100 million doses. These are certainly encouraging signs, but at the same time, we're reminded that regulation and opening of cities and lifestyles remain challenging and will throughout the year. Our focus, though, remains on our strategic plan, in particular our cash flow growth, platform execution, and capital allocation. And with our team's help, we will be successful. With that, thank you and take care.

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