UDR, Inc.

Q4 2021 Earnings Conference Call

2/9/2022

spk00: Director of Investor Relations, Trent Trujillo. Thank you, Mr. Trujillo. You may begin.
spk17: 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 on 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 Toomey.
spk08: Thank you, Trent, and welcome to UDR's fourth quarter 2021 conference call. Presenting on the call with me today are Senior Vice President of Operations, Mike Lacey, and Chief Financial Officer Joe Fisher, who will discuss our results. Senior Officers Harry Alcock, Matt Kozad, Andrew Cantor, and Chris Van Enns will also be available during the Q&A portion of the call. 2021 was a remarkable year for UDR and one that was filled with a variety of accomplishments and milestones, including, first, we completed the rollout of Platform 1.0, across our markets, thereby fully transitioning to a self-service business model. This implementation enhances customer service, resident satisfaction, and has delivered nearly 20 million, or 3%, in additional run rate NOI through margin expansion driven primarily by lower controllable operating expenses. Our controllable operating margin is now 250 basis points above our peers at the same average rent level and even higher versus private operators. Second, we accretively grew the company through 1.5 billion of acquisitions that utilized many of our repeatable operating and capital allocation competitive advantages. Funding these fully equitized transactions with attractively priced capital further enhanced our value creation and balance sheet strength. This approach and subsequent execution has added 1% to 2% to our run rate earnings based on stabilized yields. Third, we generated total shareholder return of over 61%, which extends our track record of outperforming peer and all REIT return indices over time. Fourth, we published our third annual ESG report, which further supported our ongoing commitment to continually improve our corporate citizenry. In the report, we introduced enhanced greenhouse gas emissions and energy usage reduction targets, and highlighted the support that we have provided to associates and residents during the pandemic. including helping to secure over $28 million in rental assistance funds for those in need. These ESG actions and others led Gresby to recognize UDR as a global leader in sustainability and at the highest rated publicly listed residential company worldwide, with a score of 86. Last, we conducted our biannual associate engagement survey, to which we were a remarkable 97% participation rate. Key findings were UDR associates, enablement scores were well above norm for high-performing companies, and a very high percentage of UDR employees believe that diverse opinions are valued at our company and those with diverse backgrounds can succeed. As we embark on our 50th year as a public company, I'm excited about the opportunities ahead for us. We have a track record of consistent FFOA growth and TSR performance as evidenced by our better-than-peer median earnings growth in seven of the last nine years and significant TSR outperformance over rolling five-year periods over the past decades. We believe this robust performance will continue going forward due to, first, favorable fundamentals. Apartment rental demand is robust, and pricing power is as strong as I've seen in my 30-plus year career. Second, our unique operating and capital allocation value creation drivers that should continue to drive margin expansion in excess of our industry. And third, our next-gen operating platform and Innovation 2.0, which compounds the benefits of our best-in-class operations and the use of advanced AI technology data science to drive growth opportunities and cost savings. Regarding external growth, our plan is to continue to identify targeted accretive opportunities that utilize our competitive advantages. Our focus will remain on one, finding under-managed deal next door acquisitions that afford elevated margin expansion through greater on-site efficiencies. Two, securing DCP investments that deliver high current yields with embedded acquisition optionality. And three, expanding development and redevelopment opportunities that enhance NOI. What worked well for UDR in 2021 should continue to generate relative upside in 2022 and beyond. Our best in class operating acumen and ability to creatively allocate capital across our diverse portfolio should continue to differentiate us versus public and private peers. Considering these attributes, we expect FFOA per share growth of over 12% at the midpoint and dividend growth of 5% in 2022. This positions UDR well to again generate attractive total returns for our shareholders. Mike and Joe will provide additional color on our guidance in their commentary. To summarize my thoughts on actions taken during 2021, we accretively grew the company by $1.5 billion. We were far more active than peers in utilizing attractively priced equity. And we fundamentally changed how we interact with our customer by moving to a self-service business model through our next-gen operating platform. As stewards of your capital, we appreciate your trust in our people, process, and strategy, which has been critical in enabling us to build and continue to build and deliver on our vision. Last, our long-term success has been and will continue to be founded on our people and our culture. We all have experienced a lot of change over the past two years. And I'd like to express sincere gratitude to my fellow UDR associates for their hard work, their compassion, and their willingness to think outside the box. I look forward to another strong year of growth in 2022 and beyond. With that, I will turn it over to Mike.
spk19: Thank you, Tom. To begin, strong same-store results supported fourth quarter FFOA per share at the high end of our previously provided guidance range. Sequential same-store cash revenue grew 3% in the fourth quarter, defying the traditional seasonal slowdown. Key components of our 9% and 11.4% year-over-year same-store cash revenue and NOI growth included effective blended lease rate growth of 11.7%, which accelerated sequentially by 350 basis points versus the third quarter and was supported by minimal concessions granted. weighted average occupancy of 97.1%, 100 basis points higher than a year ago, and annualized turnover of approximately 35%, which declined by more than 650 basis points versus a year ago, and was approximately 500 basis points below our historical fourth quarter turnover rate. These favorable trends have continued into 2022. Demand for multifamily housing remains unseasonably strong. January occupancy ticked up to 97.4%, and blended rate growth continued to accelerate to over 13% as we sustained rate growth to strengthen our 2022 and 2023 rent roll, with market rents already increasing approximately 2% to start 2022. Market rents continued to demonstrate strength, and our loss to leases held steady at 11%. We are capturing this embedded upside by driving rental rate higher and utilizing platform initiatives unique to UDR. Expanding on our industry-leading platform, we have now fully rolled out version 1.0 of our next-gen operating platform across all our markets and have turned our attention to the next phase, which we call Innovation 2.0. This builds upon our unique self-service model that has permanently reduced headcount at our communities by 40% on average, driven our controllable operating margin 250 basis points above peers at the same average rent level, increased our resident satisfaction scores by 24% since 2018, and generated nearly 20 million of incremental NOI on our legacy communities. We view Innovation 2.0 as the next evolutionary step that will further expand our controllable margin versus public and private peers as we continue to differentiate ourselves within the industry. Arriving at the intersection of data and decisions, we are leveraging data to better understand resident and prospect decisions, making to improve resident experience while driving rents, retention, vacant days, other income, and controllable expenses. With a higher focus on revenue growth in Platform 1.0, we have identified five big picture topics that have a max potential to deliver more than 100 million of incremental run rate NOI. This includes pricing engine optimization that turns shoppers into buyers, reduces vacant days, leveraging residents and prospect data to improve their experience, increase our share of resident wallet, and additional controllable expense reductions. We have already identified near-term operating initiatives among these categories that should deliver at least 20 million of incremental run rate NOI over the next 24 months. Our platform also broadens our acquisition and capital allocation opportunities as we can scale our operations, drive more expense control, and introduce unique other income opportunities. UDR has been the most active acquirer in our peer group over the last three years, and we have a demonstrated ability to consistently drive outside growth at these new communities by implementing our platform and other unique value creation initiatives. Thus far, We have expanded the weighted average yield on our nearly $1 billion of third-party acquisitions from 2019 by 70 basis points to 5.5% and above 6% on a mark-to-market basis once loss to lease is captured. This 33% yield improvement is well in excess of market growth alone. Harry, Andrew, and our transaction team have done an excellent job finding deal-next-door acquisitions in desirable markets where we can create value through our platform capabilities. And we expect similar yield expansion from our 1.8 billion of late 2020 and full year 2021 acquisitions due to our repeatable competitive advantages. Already, these acquired communities are outperforming year one underwriting by an average of 20 basis points and have 90 basis points of incremental upside on a mark-to-market basis based on current loss to lease. Our yield on these acquisitions would be in the mid 5% range upon capturing this upside. Turning to 2022 guidance, we expect to achieve 8.5% same-store revenue growth and 11% same-store NOI growth at our midpoints on a straight line basis. To provide some color on the drivers of this growth, first, we expect effective blended rate growth of approximately 6.5% to 7.5% with blended rate growth in the first half of 2022 in the 10 to 11% range. Second, we expect occupancy to remain relatively high and average 97.2% to 97.4% or a 10 to 30 basis point improvement over full year 2021 results. But to be clear, our focus is on driving rents and we expect to maximize revenue by keeping occupancy around the current level. And third, we expect controllable operating expense growth to be limited to the 2 to 3% range. or 50 basis points better than our overall same-store expense growth. While the above assumptions imply a second-half slowdown in blended rate growth closer to historical norms, it is important to note that we are not seeing any signs today that would point to a slowdown of that magnitude. Demand, traffic, and wage growth remain strong. Relative affordability is in our favor, and rents continue to move higher. The high end of the range would be achieved by a continuation of current demand trends and blended rate growth remaining higher than typical seasonal rates. Conversely, the low end of our range reflects the continued challenges coming from, one, regulatory restrictions on renewal rate growth and fees, two, the approximately 500 long-term delinquent residents, half of which have been nonresponsive to our efforts in seeking government assistance, three, the elongated or prohibited eviction process, in roughly 65% of our markets, with a two- to six-month process for courts to process evictions where they are allowed, and four cycling more difficult comps in the back half of 2022. Therefore, our full-year guidance embeds some initial conservatism on the second half of 2022. However, we will have visibility on 65% to 70% of our full-year rent roll by the end of April and plan to reassess our guidance assumptions as we enter the traditional peak leasing period. We are convicted in our upcoming results and are pricing our apartment homes to both capture the current rent opportunity and build a strong rent roll that should support attractive same-store growth in 2023 as well. Moving on, we see broad-based pricing strength across our portfolio. Concessions remain almost nonexistent, and we're only offering one to two weeks on average in select submarkets within San Francisco and Washington, D.C. At the portfolio level, gross potential rents are up 5% to 6% on average versus pre-COVID levels. Incomes are up similar amounts, so rent to income ratios have remained stable in the low 20% range. This supports strong pricing power given the trajectory of wage inflation, relative affordability among housing options, and our current loss to lease of 11%. Across our markets and product types, excluding the approximately 10% of NOI, that remains subject to regulatory restrictions and limits on renewal increases, we have seen a convergence in effective growth rates among our urban and suburban, Sunbelt and coastal, and A and B quality communities. We expect this trend to continue as the year progresses. Finally, we remain successful in accessing rental assistance programs which benefit our collections. During 2021, we sourced more than $28 million in assistance for residents in need. with 10 million of this coming during the fourth quarter and a similar pace continuing to January. We have another $13 million of application in process with a majority related to residents and former residents in California and the state of Washington. We continue to have only a small segment of less than 1% of our residents that are long-term delinquent, but many of the markets in which we operate face delays or restrictions in the eviction process. Nevertheless, we are leveraging the work of our dedicated governmental affairs team to mitigate the risks associated with the regulatory backdrop and generate positive outcomes for residents, the company, and our stakeholders. In closing, 2022 has started even stronger than 2021 finished. We continue to innovate and enhance our industry-leading operating platform, and I thank all of my colleagues for their dedication to setting the bar higher on how we do business. And now, I will turn over the call to Joe.
spk12: Thank you, Mike. The topics I will cover today include our fourth quarter and full year 2021 results and our initial outlook for full year 2022, a summary of recent transactions and capital markets activity, and a balance sheet and liquidity update. Our fourth quarter FFO as adjusted per share of 54 cents achieved the high end of our previously provided guidance range and was supported by strong same-store revenue growth, and accretive transactions. Not captured and FFOs adjusted is the approximately $35 million of realized and unrealized gains from real estate technology investments during the quarter, primarily from smart rent becoming a public company. The nearly $60 million of full year 2021 gains related to these investments have effectively funded platform 1.0 infrastructure, including our proprietary data hub AI and data science initiatives, and the installation of smart home technology across our portfolio. Looking ahead, our full year 2022 FFOA per share guidance range is $2.22 to $2.30. The $2.26 midpoint represents a more than 12% increase versus our full year 2021 result of $2.01. This increase is driven by the following, a 27 penny benefit from same store joint venture NOI, a three penny benefit from non-same store communities through additional accretion and yield expansion from our fully equitized 2021 acquisitions, offset by two pennies from higher interest expense, two pennies from increase in our development pipeline and the initial lease up drag on several projects, and one penny from increased G&A expense. For the first quarter, our FFOA per share guidance range is 53 cents to 55 cents. This is supported by continued positive sequential same-store NOI growth and accretion from recent capital allocation activities, offset by the January payback of our 1200 Broadway DCP investment, development lease up drag, and higher G&A. For same-store guidance, full-year revenue and NOI growth ranges on a straight-line basis are 7.5% to 9.5% and 9.5% to 12.5% respectively. A 100 basis point difference between our cash and straight-line same-store guidance ranges, as outlined on attachment 14 of our supplement, account for the residual impact of amortizing prior concessions that are not expected to repeat in 2022. Should market strength remain, emergency regulatory measures continue to sunset, and we are able to capture market pricing, we believe there is upside to these initial forecasts. However, the inverse is true as well. Finally, our 2022 annualized dividend of $1.52 per share represents a healthy 5% increase compared to our 2021 dividend, which enhances our total return profile. Based on our AFFO per share guidance, our 2022 dividend reflects a payout ratio of 74%, which is similar to our pre-pandemic payout ratio in the low 70% range. Additional guidance details, including sources and uses expectations, are available on attachment 14 and 15D of our supplement. Next, a transactions update. Our gross 2021 acquisition activity totaled approximately $1.5 billion. During the fourth quarter, we accretively acquired three communities for roughly $410 million, sold one community for $126 million, and committed $52 million to a new DCP investment. One of our recently completed acquisitions was sourced from our DCP portfolio and partially funded through the issuance of OP units. illustrating both the embedded optionality we have with these investments and our access to a diverse and accretive capital allocation menu. Most of our 2021 acquisitions have been in markets that our predictive analytics framework identified as desirable. Nearly all are located proximate to other UDR communities, and all have been match-funded with accretively priced equity and disposition capital. We will continue to utilize this asset selection playbook moving forward to generate outsized yield expansion through our multiple value creation drivers, which enhance year one through year three yields well in excess of what the market alone provides. Please refer to yesterday's release for additional details on recent transactions. Moving on, our investment grade balance sheet remains liquid and fully capable of funding our capital needs. Some highlights include First, we have only $290 million of consolidated debt or just over 1% of enterprise value scheduled to mature through 2025 after excluding amounts on our credit facilities and our commercial paper program. Our proactive approach to managing our balance sheet has resulted in the best three-year liquidity outlook in the sector and the lowest weighted average interest rate amongst the multifamily peer group at 2.8%. Second, As of December 31st, our liquidity totaled $1.4 billion as measured by our cash and net credit facility capacity and including the approximately $235 million in future expected proceeds from the settlement of our outstanding forward equity sale agreements. Last, largely due to fully equitizing 2021 acquisitions and an upward inflection in NOI, our financial leverage continues to improve. and was 22% on enterprise value inclusive of joint ventures, while net debt to EBITDA was 6.4 times, down from 6.8 times a year ago. Taken together, our balance sheet remains in excellent shape, our liquidity position is strong, our forward sources and uses remain balanced, and we continue to utilize a variety of capital allocation competitive advantages to create value. With that, I will open it up for Q&A. Operator?
spk00: Thank you. At this time, we will 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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star keys. We ask that you please limit to one question and one follow-up, and then re-enter the queue for any additional questions. Our first question comes from the line of Nick Joseph with Citi. Please proceed with your question.
spk20: Thanks. You talked about being active on external growth over the past year and kind of the playbook of buying properties near existing EDR assets. How does the pipeline look today in terms of that external growth opportunity?
spk12: Hey, Nick. It's Joe. Good to hear from you. Yeah, I guess I'd say pipeline got a little bit lighter at year end. And Andrew Cannon will probably give you a little bit of color on cap rates and kind of what we're seeing today. But, you know, over the last year, we've been pretty active on the external growth front, trying to target markets that we believe are set up for good long-term growth, as well as assets specifically that fit within the platform and have all the value creators that we're typically looking for. You did see, though, we went pretty light on any external growth and new equity issuance there in the fourth quarter subsequent to 2020. last quarter's call, really driven by the fact that, you know, we want to make sure we find accretive deals and match fund those. So it kind of gives you a signal a little bit for how we're looking at the pipeline throughout the fourth quarter. But, Andrew, you can kind of tell them what you're seeing in the market today.
spk01: Yeah, this is Andrew Cantor. It's good to hear your voice. Cap rates have come down, you know, probably 25 to 50 basis points since last year to kind of a range of three and a half to four. One of the key things is there's little diversification between market and construction type, location, and age. So we're going to continue to look for the acquisitions where we can have a competitive advantage, like Joe said, where we can create repeatable above-market NOI, so really leveraging the operating platform, focusing on the deal next door where we have visibility into the opportunities to enhance both operations and the quality of the improvements to create meaningful long-term value creation, invested markets that are identified by our predictive analytics model, implement capital programs to enhance the community. And of course, there's always, this is always in addition to the actual market rent growth that it will vary by individual markets and is likely priced into the asset.
spk20: Thank you. And then you mentioned the focus on ESG and the initiatives. I think you talked about energy and greenhouse gas emissions. How are you thinking about the cost and the return on those programs?
spk12: Yeah, so when you look at our corporate responsibility report that we put out this year, and we talked a little bit about the score of 86 and how proud we are of the efforts there, and not just Gresby, but all the all-around efforts, I'd say what you'll see us committed to and what we'll speak more to on a go-forward basis is the commitment to science-based target initiatives on a go-forward basis. And so as we work through that process, we're going to get a lot better handle on what are our longer-term targets, what are the actions we're going to need to take And so we're going to look across that in terms of prioritization by what's the carbon footprint by assets, as well as the regulatory overlay, as some of these markets have a little bit more of a regulatory constraint or a push, if you will. You're seeing a lot of Climate Act mobilization type of things targeting net zero taking place in states like California, Washington, New York, and others. So in terms of the dollars and returns, probably too early to say at this point, we have had a pretty active approach to it, installing more solar, more EV, things of that nature over the last five to 10 years. But we'll continue to refine that as we get into the SBTI and kind of talk it through next year with the investor base.
spk00: Thank you very much.
spk04: Thanks, Nick.
spk00: Our next question comes from the line of Anthony Paolone with JP Morgan. Please proceed with your question.
spk16: Great, thank you. I think this is probably for Mike. Can you talk about what you have embedded in guidance in terms of market rent growth? Because I think you had mentioned the 2% that sounds like it's already unfolded in the last month or so. But just curious what you have baked into the guide over the course of the year. And then I guess in that same regard, you should be able to do this math. It doesn't always work. Where does that put those spreads come the fourth quarter? Do they go from 13% to 3% or 6% or maybe help us with that trajectory?
spk19: Hey, Tony. Yeah, no, I appreciate the question. I think first and foremost, it's good to back up and just think about how 2022 is made up. And the earning we've referenced previously is around that 2.7%. And in my prepared remarks, I mentioned our blends are 10 to 11% in the first half. And basically, you have to take those two numbers, add them up, divide by two. And that gives you a pretty good idea of where your effective rent should be for the year. And frankly, that's around 700 basis points of our 8.5%. that we have for midpoint on a straight line basis for revenue. So that gives you an idea of how much is being made up of rents today. And again, it's a lot of what already happened and what's about to happen in this first half of the year. But that being said, we have received some questions regarding our loss to lease and kind of the six and a half to seven and a half percent that we have on blends for the year. So let me just take a minute to walk you through that. First, when we originally sent out our renewals for January and February of this year, we expected more typical seasonality. And that is we expected flattish sequential growth as it relates to 4Q of last year. And frankly, we saw 200 basis point increase in market rents to start the year. So we essentially banked additional growth for early 23, assuming fundamentals remain strong. Second, the regulatory restrictions on rental rate increases have and will continue to restrict our ability to fully capture market growth in some of our markets in 2022. But assuming these restrictions sunset at some point this year, we do expect to capture that rate growth in 2023. And third, I'd tell you, as you know, we aim to maximize revenue growth, not just rental growth. And as such, occupancy and retention affect our renewal calculus. For some of our markets, we already gave existing residents big pops last year. Popping them with 15% to 20% rate increases again this year, especially in the Sunbelt, could cause rent growth fatigue, but You know, time will tell. So we'll see how that transpires throughout the year. And again, this just means we're going to realize most of this growth as we move into the latter half of this year and really into 2023. So I would tell you overall, Tony, we are expecting to capture our existing loss to lease and future market rent growth over the next two years, not just 2022. And to put this potential in perspective, assuming 2022 plays out like a typical year where market rents grow throughout the year, we would expect to have mid to high single-digit loss at least moving into 23, as well as a strong earn-in should fundamentals continue to hold up. And frankly, we'll know more in the next few months when we get on our call in April. We'll be able to discuss these trends in more detail, and we'll have a better idea of what the back half looks like.
spk16: Okay, great. Thanks for that. And then my follow-up question is just more on the capital side, maybe for Harry or Andrew. With regards to cap rates, you mentioned a 3.5% to 4% market number, but given just the move in NOI, we're seeing the bounce back. What is that based on? Are people adjusting cap rates now that the look ahead is for a lot higher NOI, or just the pound-for-pound asset value is just really going up commensurate with NOI?
spk04: So, Tony, it's good to hear you.
spk01: So if I'm understanding your question, you're asking how are people underwriting those deals today?
spk16: Yeah, just trying to understand, like we're still talking, like when we started to talk about cap rates in the threes, it was off of kind of trough NOI and we're seeing pretty big rebounds here. So are the asset values keeping pace or are we going to be talking about four caps, you know, in a few quarters just because NOI is higher or, you know, what's happening with that?
spk01: Yeah, I mean, In today, I mean, people are underwriting rent growth that none of us have seen, right? We're achieving rent growth at the property level that's higher than we've seen in most of our careers. And so what's happening is people are no longer looking and saying, hey, this rent growth, we'll catch it in our market growth. We're now looking at loss to lease and we're pricing assets based on the current trend of leasing moving forward, right? So you're capturing a much greater level of NOI in that first year than you would have normally. So that's where you're getting a lot of growth. So people are willing to pay a lower cap rate today because in the short term, right in that first 12 months, you're going to capture a lot of that loss to lease. Tony, this is to me.
spk08: I'd probably add to it. I mean, the wall of capital chasing this asset class is off the charts. And when you go talk through people about their capital and what their leverage plans are and their sensitivity about rates, we're comfortable with a low profile on the leverage, and we're underweight this asset class. We have to buy it to get back into the weighting we want, and we like the long-term attributes of it, how it performs, up times, down times. And so I think the wall of capital... overcomes any interest rate environment. Assets go up next year. NOIs, you can see from our guidance and everyone else's, we think it's a strong NOI window, 22, 23. And so I think asset values are going up. Cap rate calculations, they're always all over the map.
spk16: So people are willing to pay these low cap rates even on the higher forward NOI, it sounds like.
spk03: Absolutely. Okay.
spk06: Thank you. Tony, just a couple other things. I think as more of this inflated NOI growth is behind us, you probably do see cap rates move up a little. But remember, your embedded NOI is higher, so therefore values are probably also likely higher. And the second thing that's happening is replacement costs continue to move up. And so if replacement costs are up 10%, 15%, 20%, 25%, I mean, that's that becomes sort of another metric that buyers look at when assessing an appropriate price for an asset and overall asset values. Do you still have a lot of positive momentum as it relates to asset values?
spk16: Great. Thanks for the time.
spk00: Our next question comes from the line of Rich Hill with Morgan Stanley. Please proceed with your question.
spk09: Hey, guys. First of all, thank you for all the transparency on the guide and what's included and what's not included. Humor me for a second. I just wanted to maybe understand this a little bit better. Because if I take your loss to lease, and let's just assume I conservatively give you 50% credit for a recapture of that, you have 2% rent increases already in January. Doesn't that get me to 7.5% versus your same-store revenue guide, which is on a cash basis not too far off from that? why isn't this supposed to be something much higher than that? And I recognize that you said you're going to have more visibility and there's some conservatism built in the second half, but I'm just trying to do the gymnastics myself where, you know, trying to understand where it potentially could go. So what's wrong in the math that I'm thinking through and maybe how should I be thinking about it?
spk19: No, Rich, I think you're thinking about it right. And that's, Where we have visibility today, we do see that earn-in starting to really take fold, and that's why we have those blends of 10% to 11% upwards through the second quarter. After that, we start to enter our leasing season, and we want to see just how that starts to play out to some degree. That being said, we do think that there's more opportunity in the back half of this year. We just want to wait and see how that plays out.
spk09: Okay, helpful. Can we talk about expenses for a second? I was pleasantly surprised by the guide. I think it was at 3% at midpoint. That seems pretty good relative to inflation. Is there anything specifically with your next-gen operating platform that's driving that lower? How should we think about that?
spk19: Yeah, no, that's a really good question. And I think the best way to do this is break it down for you. So to your point, that 3% midpoint, But when you look at our controllable expenses, we expect between 2% to 3%. And a lot of this does have to do with what we've done with the platform. For example, personnel, as we go into this year, we really expect between 0% to 2% growth. Some of that's based on the stuff that we already put in place, and we get that benefit in the first half of this year. But that's a big piece of it. And then R&M is going to start to come back down in that 4% to 5% range, much lower than what you've been seeing over the last year or two, because We've basically gone through and we've already entered into the third-party contracts with our groups. We're starting to cycle through that, so we expect a more normalized rate going forward. And then on our marketing side, we expect flat growth. So again, controllable expenses in that 2% to 3% range compares to 2.2% in 2021 and really 1% over the last three years. So the platform has really allowed us to get pretty efficient as it comes to controllable expenses. And then on the non-controllables, which, as you know, makes up about 45% of our stack. We're between 3.5% and 4% expectations this year. That compares to about 5.3% in 21, and that's basically made up of taxes of 4% to 5%, and then our insurance in that 0% to 5% range.
spk09: Got it. And then just maybe one just follow-up question going back to the guide. what the heck happened in January? I recognize that January is seasonably strong relative to 4Q, but it's almost like a light switch. And so you have boots on the ground. We just write about things for a living. What happened in January? Is there anything fundamentally different? And is this the new normal? Or are you watching to see if this was an aberration for some reason?
spk19: Excellent question. And I will tell you that it points back to retention. When we entered the year, we expected we were going out with some pretty high renewal increases, and we expected we'd see more move-outs. Frankly, we had 300 less move-outs in January, and the fact that we have more people living with us, we were allowed to push our market rents even further than we ever expected. So I think it goes back to we sent out some pretty aggressive renewals. People took them. They're not moving. Starting to see a very similar trend in February. So it gives us a little bit of wind at our back, if you will.
spk12: Great. I'd say, too, we've talked about this in the past. I mean, it's been throughout the last 12 months, and I think you can take a look at a couple different things, but obviously there's demand side when you look at what's taking place in wages and balance sheets. Those are obviously in a very positive position. When you look at demographics, the household unbundling, what's going on with migration trends, some of those type of things, I think the relative value side is When you look at single family value proposition relative to multi, multi is in a very good position. But when you look at migration trends just within our markets, I think all of our markets are in pretty good demand at this point in time. So Mike has some pretty good stats for you in terms of what's going on in New York, San Fran, Sunbelt, some of that stuff that we're seeing on new move-ins.
spk19: Yeah, thanks for teeing that up, Joe. I think that's a really good point. When you look at our move-out stats in general, we had more former residents staying within the metro area than When you think about our portfolio, we have 77% of move-out staying within the MSA, and this compares to 78% last year. Just to give you a few markets as an example, New York, 80% versus 80% last year. San Francisco, 72% versus 77% last year. And then our Sunbelt was at 82% of move-out staying within their MSA versus 80% last year. So staying relatively consistent. As it relates to move-ins, what we're seeing is is a little bit more of a reversal of the trends in 2020. 34% of our move-ins came from outside of the MSA, and this compares to 20% the year before. And again, just to give you a little more color on some of the markets, New York, 36% of move-ins from outside the MSA versus 16% the year before. San Francisco is around 40% versus 14% the year before. And then our Sun Belt was actually 40% versus 33% the year before. Pretty promising. Overall, coastal markets experience more people move in from outside of the MSA. So very strong trends.
spk09: Perfect, guys. This is excellent. Thank you.
spk08: Rich, you sure you don't want to hear a little bit more about the traffic patterns on the migration side of the equation?
spk09: I would love to hear anything you want to tell me. We'll move on.
spk12: Thanks, Rich.
spk00: Thank you. Our next question comes from the line of Rich Hightower with Evercore ISI. Please proceed with your question.
spk14: Hey, good morning, guys. I guess I could ask a question about traffic, but maybe you can sort of parlay that into my first real question, which was just on your basic assumption around demand patterns for the second half that sort of gets you to the current guidance, which, of course, you know, you've pointed out that you'll have a lot more visibility in a couple months here. But, you know, what are you sort of underwriting in terms of basic demand? Because if we look at the second half of 2021, you know, depending on the source you look at it, it was somewhere between 2x and 3x what is typical. And that seemed to apply to every market except for New York and San Francisco, let's say. So what are you sort of assuming on that basis, again, for the second half of this year?
spk19: Yeah, Rich, this is Mike. Right now, we expect pretty typical seasonality. And when you look at that six and a half to seven and a half blend that we gave for the year, and I gave you a 10 to 11 in the first half, that implies about a 3% to 4% growth in terms of blends in the back half. So again, it's coming down more seasonal. And again, we think we do have the wind at our back, and maybe there's some conservatism in there. And we'll see when leasing season starts to pick up, and we'll be able to give you a little bit more color.
spk14: Okay, fair enough. And then just on the capital side, I noticed that there's a big zero for disposition guidance this year. Is that a sort of a solve for X in the sense that you don't need the capital from that particular source or is it a statement about the, obviously it's not a statement about the current ability to sell assets, which is presumably very strong, but just what's driving that particular element of guidance?
spk12: Yep. Hey, Rich. It's Joe. You nailed it on the head there. It's really a solve for X, meaning that we've got a pretty strong free cash flow sitting out there at $185 million or so, another $235 million of equity, and that really funds all of our development, redevelopment, CapEx type of needs going into next year. So if we find opportunities, as Andrew kind of talked about earlier, if the pipeline picks up and we can find accretive opportunities, At that point in time, we'll pivot back to do we want dispositions? Is equity priced appropriately at that point in time? So it's really just kind of how we see the pipeline today and stacking up and starting with zero today. But I wouldn't be surprised if dispositions pick up as we move throughout the year. Got it. Thanks, Joe.
spk00: Our next question comes from the line of Austin Worshmuth with KeyBank. Please proceed with your question.
spk11: Great. Thanks, everybody. Mike, not sure if I missed this from an earlier question, but could you give us what you expect for market rent growth across the portfolio in 2022? And then I'm curious if that mid to high single digit loss to lease heading into 23 you referenced, is that based on sort of the conservative guidance that you guys have outlined? And how does that change, I guess, if back half of growth outperforms your initial projections?
spk19: Yeah, it relates to market rents. We expect, again, call it 6% to 7% for the year. That's what we're looking at when it comes to new lease growth.
spk03: First half of X and second half of Y. Yeah, in the first half.
spk19: And then when you think about market rents, again, we've been giving the blend of that 10% to 11%. Say the new lease growth is a little bit higher than our renewals in both the front half and back half as we continue to push through the year.
spk12: So what it kind of implies for that back half full year, if you looked at a 4Q22 over 4Q21, so if you're picking up 10 plus percent blends in the first half, a full year of six to seven, your blends in the back half get into the three to four percent range. That really aligns with how we're thinking about market rent growth for the full year in 22. So a typical year, typical seasonality, what you've seen over time. So assuming back to normalcy, although I think as Mike talked about earlier, we're not seeing any signs of that, obviously, with shooting up 2% out of the gates, demand strong, immigration trend strong. So not seeing it yet, but that's what we put in the numbers. And so to your second point, if we do see sustainability of these current trends and market growth continues to pick up, obviously there's a little bit of a pickup to same store numbers this year. But the bigger pickup is going to be in terms of that loss to lease, in terms of mid to high single digits we talked about. That's going to pick up even more, and you're going to grow that earn-in for next year and grow same-store revenue growth for next year. So it becomes more of a next-year story if second half has that strength that we're hoping for.
spk11: So I guess it depends on how much market rent growth outperforms, whether or not you can still do better in the back half and end up in the same position or even better position on the loss-to-lease heading into 2023. Is that fair?
spk12: That's correct.
spk11: Okay, got it. And then based on the 2% move-ins you've seen year-to-date, is that broad-based or are there specific markets that are driving the strength?
spk19: You know, it's pretty broad-based. We're seeing kind of that convergence, if you will, across our markets. So we've seen pretty good demand as it is in the Sun Belt, and we're also seeing it in our Pacific Northwest as well as the Northeast markets.
spk11: Okay, got it. Thank you.
spk00: Our next question comes from the line of Brad Heffern with RBC Capital Markets. Please proceed with your question.
spk10: Hey, everyone. Just following up on that last answer, you notably excluded California from that. So I'm curious if you could give your thoughts on the Bay Area, you know, where you think it is in the stages of the recovery and how you see it playing out this year.
spk19: I didn't mean to leave them out. I apologize for that. Southern California is definitely a little bit stronger than Northern California today. That being said, San Francisco is the one market where we haven't reached those pre-level, pre-COVID peak rents, if you will. We're getting closer. And I'll tell you right now, we're running around 97% occupancy. The concession levels are relatively muted at this point in that one to 2% or two-week range. And it's more so down in the kind of Santa Clara, Santa Mateos of the world. Down in Soma as well as downtown, we've actually seen a little bit of a pop in demand. So right now, San Francisco feels like it's at a sustainable level. That being said, I think we have a few more months before we start to see rents get back to those pre-COVID levels.
spk10: Okay, got it. And then on DCP, you guys are guiding to net redemptions this year. Do you have any figure you can give for kind of what the headwind that is for earnings? And should we sort of expect net redemptions to continue as long as we're in this current environment?
spk12: Yeah. Hey, Brad, it's Joe. Yeah, I'll kind of step back a little bit because you did highlight the DCP guidance and the net source of capital that it is this year. But we did want to comment a little bit on that relative FFOA growth versus peers, because we got a couple questions or saw a couple comments and notes on it. So I guess, number one, I'd step back and say, you know, we talked up front in the commentary, seven of the last nine years have continued to outperform the peers on earnings growth. Over the last three throughout this downturn, have had a pretty meaningful degree of outperformance. So I think we've had a pretty good history and track record of outperforming. As we sit here and look at relative to peers today, we're about a percent and a half light on 22 growth. I definitely hope with the team, the competitive advantages, some of the levers that we can pull on growth and operations, hopefully we're able to close that gap and continue our track record on go-forward basis and exceed pure average. But kind of building blocks of it, not knowing what everybody else has in theirs, you know what our same store numbers are. We do have a drag on interest expense, a little bit more debt in the capital stack next year, but we've also assumed about 100 basis point increase for short-term rates throughout the year. So you have a drag on that front. On the G&A front, we do have continued growth as we continue to invest in our people and pay competitive compensation packages, but also continue to invest in the areas of innovation, ESG, and human capital. And so we have a number of headcounts that we're adding in those areas to keep driving forward those specific departments. And then you get into kind of the external growth pieces. On the development side, If you look on attachment 9 of the supplement, you can see that we have this unique period of time right now where we have four developments that are all hitting lease up, which is very rare to have all of them come off cap interest and go into lease up right at the same time. But if you look at that $350 million of development, you've got between cap interest and NOI only about a 1.5% yield this year. Those assets are meaningfully outperforming our original underwriting. We think those will stabilize out in the 6.5% range. So right there, you have a 4 to 5 penny pickup or 2% pickup to earnings sometime over the next year to two years as those work towards stabilization. So that's a little bit of that drag. DCP, you mentioned, can be choppy at times, and we do have that as a net source of proceeds this year. That said, I think Andrew obviously can talk about the pipeline that we have there, but feel comfortable that over time we'll continue to be able to grow that. And so as redemptions come in, sometimes they may be choppy, but the reality is we're going to look to redeploy. And so I'll turn that over to Cantor in a second. But one last point just on the balance sheet was we did mention that we fully equitized our transactions last year utilizing equity. So we did grip up leverage capacity on that to further our leverage goals. And so we accelerated our decline in debt to EBITDA, which you saw was 6.4 times. here in the quarter. So that actually cost us a couple pennies as well. And so a couple of UDR-specific headwinds, but all of them are setting us up for, I think, on development, DCP, and on balance sheet better growth on a go-forward basis. But Gander can kind of take you through a little bit what he's seeing on DCP.
spk01: This is Andrew. We do expect to be able to put capital into new DCP deals. In addition to providing developers with DCP for new developments, we have recently underwritten several opportunities to provide DCP to owners of existing communities. We view this expansion into the existing product as both an opportunity to accretively invest capital, but also to create a large pipeline of future acquisition opportunities. And I think it's important to look back at what we've been able to achieve to date. We've invested almost $665 million in 21 deals since 2013. Of the 371 million or 11 round trips we've achieved, our returns are 11.4%. We feel our returns on our existing pipeline, excuse me, our existing deals will be consistent with what we achieved to date. And going forward, we're likely to see high single digits to low double digits as we diversify our investment between existing communities and developments. Our returns will likely be adjusted as we look at both the investment in existing product as well as development on a risk-adjusted basis.
spk04: Okay. Thank you for the long answer.
spk00: Our next question comes from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your question.
spk21: Hi. I'm hoping you could talk a little bit more about DCP continuing. I think you talked about growing that platform $400 million to $500 million previously. Is this just a matter of timing that the net shrinkage of of the platform in 21 or Redemption, or has the opportunity set or backdrop changed? It seemed like maybe you're expanding the opportunity set to be more acquisition focused. If you could just give us a bit more on that, that would be fantastic.
spk12: Yep. Hey, Juan. It's Joe. So it's definitely not the overall size of the opportunity set that has necessarily shrunk. We still see a great opportunity out there. And so that $400 million to $500 million desire is still on the table. It's just that we've had a couple pretty successful outcomes here. We had Orlando, the Essex Lux deal. We were able to actually buy out earlier than their maturity, but because of that, we were able to get a little bit of a discounted price and a little bit better yield, and so obviously it cost us a little bit of earnings and proceeds this year, but beneficial net-net to the long-term earnings profile of the company, and then 1,200 Broadway, we weren't able to compete on the pricing on that one, but We did have upside participation, as you saw in the SUP, of around $12 million. And so that actually enhanced that IRR to, I think, around 14% IRR, above and beyond just the PREF. And so a couple of successful outcomes that just happened to be kind of the short window of time. But typically, when you look through our DCP pipeline, you can see the maturities there on 11B. And so when you look down that, you can see pretty diversified maturity profile, which is what we've typically tried to do. And so I'd fully expect that as we move forward throughout the year and continue to grow the pipeline, I think you'll see that 290 tick up for the 50 million that's already committed to the existing pipeline. So that gets you to 340. And our desire and hope is that Andrew and Tim continue to find another 50 to 150 million here over the next 12 to 24 months to get us back up to that target that we'd like to get to. So not a byproduct of lack of opportunity, just more so timing right now.
spk21: Great. And then just my second question on the next-gen pipeline. 2.0, it seems like the upside's gone up from maybe 15 million to 20 million. Can you just talk about a little bit more on the flavor of those opportunities? Is it more on the cost side and or the revenue side? And what's the most near-term opportunity that you think will bear fruit here as we think about the next 12 to 18 months?
spk19: Sure, Juan. I always appreciate the chance to talk about a platform. So, you know, we've talked about this a little bit in the past, and we have been pretty successful as we look at our 50 initiatives, and that's around that $15 to $20 million we've identified in the near term over the next 12 to 24 months. The majority of this is on the revenue side of the equation versus the expense. Platform 1.0 really focused on that efficiency piece. This is going after some big dollars in terms of revenue. When you think about kind of the max potential and those big ideas, if you will, we do have three of them that make up almost 75% of that $100 million we're going after. And just to put it in perspective, one of the big ones is pricing. And when you think about our rent roll of $1.2 billion, we think we can go after about 1% of that or about $12 million. And this goes back to some of my prepared remarks, creating more buyers versus shoppers, working with surge pricing given that the level of demand that we're achieving right now, the fact that we've opened up the funnel and we have more traffic coming through. So basically utilizing our centralized teams as it relates to our sales team here, our marketing team and our pricing team, and really getting more aggressive as it relates to those market rents and renewal increases. Aside from that, you've heard us talk a lot about vacant days. You know, on average, we're around 21 days. We look at how we can break this down, right? It takes seven days typically to turn a unit. And then about 14 days after that, frankly, we have markets where we can turn units in three days. So leveraging the ways that we do it there, those best practices, continuing to get more efficient, we're not going to run 100% occupancy, but if you could, that's about $40 to $45 million in potential. So there's a lot of opportunity in just being more efficient in the way that you drive your occupancy up versus cutting rates. And then third, it's really around that resident experience, understanding our resident better, understanding our future prospects, leveraging, again, that $1.2 billion in our rent roll, we think we can go after 1% to 2%. So $12 million to $24 million allows us to be a little bit more efficient as we retain our residents, as we attract our future residents. And frankly, it lets us push our market rents up if we're able to have a much higher retention rate. So again, these big picture, big potential items allow us to get pretty aggressive and They're more on the revenue side than the expense side. Patrick, thank you.
spk00: Our next question comes from the line of Neil Malkin with Capital One Securities. Please proceed with your question.
spk15: Hey, thanks, everyone. The first one for me, I think people have talked a little bit about it, but on the acquisitions, Joe, I don't know if it was you last time, but it seemed like you guys were talking about just on the acquisition side being pretty aggressive. I think it's clear to everyone how valuable your next gen and operating platform has been to your success there. But just your commentary on sort of the end of 21, kind of a quiet quarter, especially nothing announced subsequent to quarter end. Your stock price is pretty much where it was before. I mean, really low cost of capital. So Again, is the acquisition commentary just a function of timing, or are you seeing cap rates, despite the value you add from installing that into your platform, just a little bit too low for you right now? Can you just maybe talk about that and if we should kind of change how we think about your aggressiveness or the ability for you to acquire above your peers in 2022? Yep.
spk12: Fair question, Neil. I'd say it's more a product of just the timing of the year. So you see a lot of product brought to the market throughout the year, but as you approach year end, less product being marketed for sale. In addition, the first three weeks, four weeks of the year end up pretty slow up until NMHC conference, and so you see a lot of deals launch at that point in time. So there's a lull naturally just given seasonality in the pipeline, but then it starts to pick up again. So I think you've got a little bit of a pipeline issue there. as you mentioned, the platform and use the words aggressiveness, I'll use the word discipline around it, but we have been pretty active on that front, trying to make sure we find platform-centric deals, and so we're fairly selective, so even when there is a lot of transactions taking place, the reality is they're not all going to fit in terms of which markets do we want, which attributes do we want, are they going to be adjacent to or nearby to an existing asset so we can pod them, so we've been pretty selective, but I definitely wouldn't take the lack of activity in the last 30 to 60 days as a sign that we're not continuing to look, we're not being diligent and trying to find more opportunities. And similar to DCP and similar to what we're doing on development with growing that pipeline, I think we're going to continue to be active and try to take advantage of the competitive advantages that we have right now.
spk15: Great. Yes, I'll just call it aggressive discipline. You know what I mean?
spk12: Okay.
spk15: We can meet in the middle on that one. I'm just kidding. No problem. I get you. I totally understand. The other one for me, and maybe Mr. Van Enns can chime in, D.C., California, Seattle, I mean, I don't know. Are the delinquents going to be out by 2025? Who knows? But can you just talk about the various either moratoriums or rent renewal increase moratoriums? going on in D.C., California, and Seattle. Can you just give us an overview of where things stand and where you guys expect today, like as of today, where you see or when you see those things finally expiring and really being able to get your market around growth or renewals back to true market levels? Thanks.
spk07: And Neil, this is Chris. You know, thanks for the question. You know, maybe I'll back up a second and just talk a little bit more portfolio and then get into some of those markets. You know, I'd say high level, continue to be incrementally positive on where, you know, COVID emergency regulations are moving. I think you've seen us and Tom talked about it. Very successful in securing rental assistance for our residents thus far. Over 28 million in 2021. We did another 3.2 million or so in January. So that continues, but as you mentioned, in those markets and a couple others, environment remains very fluid, still plenty of regulatory challenges to really combat going forward. And you mentioned specifically eviction moratoriums. You know, right now, just about 5% of our NOI is subject to actual moratoriums, but 65% of our NOI is kind of experiencing process delays. with regard to our ability to move on long-term non-payers that really refuse to work with us or apply for rental assistance. And those process delays are, you know, I mean, you've seen these eviction protections, you know, that are granted during the application process, mandated eviction diversion programs. Mike talked about backlogged court system, et cetera. So, you know, for California in particular, You know, March 31st is going to be obviously a very big date to watch. That's when the state preemption on local moratoriums lapses. We'll be keeping an eye on that. We're not going to speculate on potentially where that goes, but obviously watching to see if any of our municipalities choose to implement anything starting April 1st. But in general, in total, continue to make progress on all this. A lot of dedicated work from the teams in the field and at corporate For some of those other markets, you know, we're really looking a little bit more at the legislative front. Obviously, still very early in the process with that. Tons of bills are going to come out in the coming weeks and months, all of which we will be closely monitoring. You know, the biggest areas of focus right now, I would say, you know, I think we're all familiar with New York SB 3082. It's good cause eviction, essentially, effectively universal rent control. That remains in committee. We'll see if it gets some traction over the coming weeks. State of Washington, we're looking pretty hard at the bill, HB 1904. That actually requires a 180-day notice for a rent increase over 7.5%. And frankly, it includes a lot of other intricacies that just make it more and more difficult to efficiently price our apartments in that state. That bill is now out of committee, but once again, continue to monitor. And then there's a variety of other states, whether it's Maryland or Massachusetts, excuse me, Virginia, Florida, that have some type of rent control bill, good cause eviction legislation, et cetera, probably less likely for success in those states. But once again, we're looking all through that. I think it's just important, though, to say that, you know, given all of this stuff that we see and the challenges we face, it's important we stay flexible. Importantly, we stay adaptable in our operations approach, just as we kind of move back towards business as usual, we hope, in 2022 throughout the portfolio.
spk12: Hey, Neil, this is Joe. Just one other thing, closing out, you kind of asked where we think it's headed. That's all the qualitative. I thought I'd give you the quantitative, too, just to underline our assumptions there that support Mike's guidance. So, Number one, just pointing out in 4Q, we saw a couple comments on page two of our press release. The in-the-quarter cash collections of 95.5 came down from 95.8 in 3Q. Did just want to highlight that that's not a concerning trend to us. That's a typical seasonal trend. If you went back and looked at last year's supplement, we actually dropped about 70 basis points sequentially. But eventually, all these quarters are getting back to 98-plus percent on collections for current residents. And that's really what underlies our guidance for 2022 is 22 looks a lot like 21. We get to 98 plus percent collected and we'll see where some of these eviction moratoriums and other legislative actions go. But right now we think it looks a lot like 21. Okay.
spk15: So is DC, are they done? Did that expire that the rents increase moratorium or do they extend that?
spk07: Yeah, the rent increases expired at the end of 2021, so obviously we've only had a small portion of time thus far where we could send out increases. Their eviction moratorium essentially ended at the same time, December 31st. But with that being said, there's still plenty, as you know, there's still plenty of transitional protections that allow people to stay in homes.
spk12: And you still do have... In the D.C. region, Neil, you still get Montgomery County, which is about 2% of our NOI. You get L.A., you get New York City rent stabilized. You get CPI plus 7 up in Oregon, CPI plus 5 in California, 15 years and older. So there's other various restrictions as well.
spk04: Okay. Thank you, guys.
spk00: Our next question comes from the line of John Pawlowski with Green Street. Please proceed with your question.
spk13: Thanks for keeping the call going. Maybe just a follow-up to that conversation. I know it's a very difficult number to quantify, but could you give us a sense for how much higher same-store revenue growth would have been this year had there been no COVID-related protections starting Jan 1?
spk12: Yeah, when you go through it and think about 98.2, let's say, collected for current residents, if you reverted our bad debt back to a typical pre-COVID number, there's 100-plus basis points to go capture there. And then when you look at what was in place in terms of renewal restrictions and caps, you probably had another 50 basis points at least to the portfolio. So I think you're looking at 100, 200 basis points benefit either last year or this year. But at some point in time, we'd hope to get back to a pre-COVID level and be able to capture access to our units and be able to price them per the contracts that are in place. So over time, it's a tailwind, we hope, but that's kind of the magnitude we're looking at.
spk13: Okay, final question for Harry or Andrew on private market pricing you're seeing right now. As the quarters roll along and pricing becomes increasingly less differentiated, are you guys finding yourselves just in your minds at least redlining markets where relative value just doesn't make sense in certain New Year metros?
spk01: Well, for us, we're not redlining any of the markets. In particular, we're really just going back to what I discussed earlier, which is just finding the deal next door and finding where we can create efficiencies both from an operating perspective as well as a capital perspective and levering the operating platform.
spk04: We're still underwriting across the country in all 20 of our markets. Okay. Thanks for the time.
spk00: Our next question comes from the line of Joshua Dennerlein with Bank of America. Please proceed with your question.
spk05: Yeah, hey, guys. I wanted to get back to that comment you made in the opening remarks about over the next, I think, 24 months, you expect to maybe achieve $20 million of NOI from your 2.0 initiative rollout. Is any of that included in 2022 guidance?
spk19: Yeah, thanks, Josh. Right now we have about 5 million of that included in our guidance. So we expect to get run rate on that as we go into next year. And then we have another call it 30 initiatives that we're currently working on that makes up the rest of that that we expect to get towards the latter half of this year going into next year. So 5 million today.
spk05: 5 million in guidance, not today.
spk19: Correct. That's right.
spk05: Okay. Okay. And then I wanted to kind of ask about Big picture question, what has really driven, like what do you think has really driven the occupancy gains to kind of record levels?
spk04: It's just... Hey, this is Toomey.
spk08: You know, I'll lead it off, Mike, to help clean me up a little bit, but I found an interesting stat that Mike was sharing with the group that pre-COVID, our average occupant per apartment home was 2.1. And today, it stands at 1.7. So in essence, people have, I hate to say it, gotten tired of their COVID roommates or gotten tired of, per se, their sofas, wherever they came from, and are occupying units at a higher rate with a lower density. And that gives us a lot of comfort on a lot of things because I think as we look towards the future and we think about income to rent, The potential to go back to the two-to-one creates a second wave of wind with respect to their ability to absorb our rent increases, as well as their wage growth, which has not been this prominent in 20-plus years. So when we think about our business model going forward, it's not just the 22 and what's the rents and how can we increase them. What's the likelihood we can sustain that into 23, 24 types?
spk19: time frame but i found that an interesting stat mike anything else you'd add for color no it's been good to see that plateau it is something we watch very closely and once it starts ticking back up that shows you that there's a little bit of fatigue there and we're still not seeing it so that's promising as tom alluded to the rent to income ratios are pretty stable to where we've expected to see them over the past couple of years and we're not really seeing a big difference across our sunbelt as well as our coastal markets it's still low 20% range, so still have a lot of wind at our back, if you will.
spk04: Thank you.
spk00: Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
spk18: Hi, hello. Good afternoon now. This question on the cost savings that you mentioned or the benefit from Project 1.0 and your new initiatives, can that drive your... your controllable expense growth from the 2% this year to closer to one in the next few years, and how should we think about that just generally?
spk19: You know, it's not out of the question, but I'll tell you the things that put a little bit of pressure on us today to keeping that around that 1% range that we've been accustomed to running over the last three years is inflation. So as we do have people turning over in positions or we have more third-party contracts, we do have to combat that to some degree. So we feel pretty comfortable with that 2% to 3% range this year. That being said, some of these initiatives as well as these big ideas that we're constantly looking at, we're always looking for that next big idea that will drive those controllable expenses down further.
spk18: Got it. Thanks. And maybe a market mix. Some of your peers have put out, I guess, long-term targets of, I guess, either expansion or Sunbelt mix that is close to what you've been doing for a while. I'm just curious, any updates on your target market mix over time? It seems like you're pretty... comfortable expanding in current markets, but just update your thoughts there. It'll be great.
spk12: Yeah, I think when we look back and kind of think about the overarching strategy here of diversification, be that by markets, price points, submarkets, capital sources, capital uses, it definitely seems to work when you look back at the track record of TSR relative performance for FFOA relative performance. So coming through this cycle, I think it's just confirmed our belief that existing strategy works. Yeah, today we're about a third West Coast, just under a third down on the Sunbelt, just over a third on the East Coast. And so we can be pretty impartial on this front in terms of we don't need to make any shifts. We feel very comfortable with where we're at. So everything really ends up being on the margin. And so, I mean, when you look through our predictive analytics platform, there's some markets in the West Coast that look good to us. You know, Inland Empire, San Diego, Orange County. You go down to the Sunbelt, we've been very active in Tampa and Dallas. Those continue to look appealing to us. On the East Coast, we've been active in the Mid-Atlantic, Philly, suburban Boston. So we've been fairly well diversified. We're not trying to make any major shifts. The goal here is simply continue to find assets that fit within the existing market mix, have a little bit better long-term growth from the markets we're selecting, and fit with platforms so you can get that immediate upside and accretion. So no shifts and no explicit targets at this point in time. All right.
spk18: Thank you.
spk00: Thank you. 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.
spk08: Thank you, Operator, and thanks for everyone for your time and interest in UDR today. You know, as our press and our call, we've outlined our current thoughts on 22, and frankly, in my 30-plus years in this business, I've not seen a better backdrop for our business today and into the future. In particular, a couple points I want to make is, as Mike highlighted, we have 60-plus percent of our revenue by the end of April. We'll be able to look at our – and we'll have visibility about the second half, and we'll look at our guidance around that timeframe and see where it tightens up to, but certainly feels like we have a lot of momentum at our back. In a competitive landscape with a lot of great companies out there, I think we've positioned ourselves very well where we have the strength in the sector, in the business, but we can bring to bear all our value creation mechanisms that are all working right now, whether that's acquisitions, development, redevelopment, DCP programs, to deliver value immediately as well as long-term. And with 21 markets, we can pivot to where the opportunity is greatest and we have a track record of doing so, and we see that as a good game plan for 22. And lastly, on the innovation front, we have a pipeline of great ideas that are in various stages of continuing to advance. We know that our customer, our associates, and our investors will benefit from that innovation. We try to be very transparent about where we think the world's headed and what we're doing to take advantage of it, and I think that trend will continue. So with that, Again, grateful for your time. Look forward to seeing you in the coming months. And as always, if there's anything we can do, please don't hesitate to reach out. Take care.
spk00: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-