UDR Inc (UDR) — Q1 2022 Earnings Call Transcript

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 this 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 Toomey.

Thank you, Trent. And welcome to UDR’s first quarter 2022 conference call. Presenting on the call with me today are Senior Vice President of Operations, Mike Lacy; and Chief Financial Officer, Joe Fisher who will discuss our results. Senior officers, Andrew Cantor; and Chris Van Ens will also be available during the Q&A portion of the call. Let me start by saying this remains the strongest operating environment that I or any of my fellow associates at UDR have ever encountered. Demand remains robust. Turnover continues to decline. Blended lease rate growth has continued to accelerate from already elevated levels and new supply growth remains relatively stable. These factors when combined with the accretion we are seeing from our repeatable operational and capital allocation competitive advantages drove our strong first quarter results and full year guidance raises as outlined in yesterday's earnings release. We as an industry do continue to face a variety of challenges, many of which are out of our control. First, inflation. On balance, inflation is a net positive as wage increases correlate to rent growth and rising hard costs mean higher replacement costs and increased asset values. The downside is higher personnel and repair and maintenance costs and G&A increases to attract and retain associates and rising interest rates. We have effectively mitigated these negative factors through, one, our platform efforts that constrain controllable expense growth below inflationary levels. And two, proactive debt management whereby over the past three years, we've increased our duration and have minimal debt maturities prior to 2025. Second, ongoing regulatory restrictions, elongated grace periods. Once restrictions are removed, the backlogged court systems continue to hamper our ability to efficiently run our business. The current environment is slightly better than in 2020 and 2021. While our ultimate collections rates have been between 98% to 98.5%. This is over 100 basis points below our pre-COVID levels. Lastly, how current geopolitical risk may ultimately impact the U.S. economy and consumer remains to be seen. Given this at UDR, we continue to focus on what we do control, which includes first, utilizing operating and capital allocation competitive advantages when opportunities present themselves. These unique capabilities drive our top and bottom line growth and enhance our sizeable controllable operating margin advantages versus public and private peers. Second, continually innovating to find the most profitable and efficient ways to conduct our business that are wins for our associates, the company, our residents, and our stakeholders. Third, ensuring that we continue to cultivate and enhance our already vibrant, inclusive, and engaging culture, as it is and will remain the cornerstone of our success. All in all, I'm as excited as I've ever been about our prospects for 2022 and 2023. To all associates listening, keep up the great work and know that the senior management deeply values what you continue to accomplish. Moving on, we continue to build on our position as a recognized global leader in ESG. With our commitment to investing in multiple Climate Tech and ESG-focused funds, these investments should help identify both in the apartment home and property-wide solutions to better address climate change and lower our carbon footprint. Similarly, our commitment to adopt SBTi this year along with extensive company-wide resources, we already dedicated to enhancing our sustainability will help to further refine our long-term ESG strategy. In closing, we’ll remain very optimistic on the strength of the multifamily industry, as well as the ultimate resiliency of the American economy and consumer. We have the right strategy, competitive advantages, and a team in place to capitalize on the opportunities that lie ahead of us. I look forward to when we can share another update with you, most likely at NAREIT. And with that, I will turn it over to Mike.

Thanks, Tom. To begin, strong same-store cash revenue growth of 10.8% topped the range of 10% to 10.5% that we provided in early March. Key components of this result and our year-over-year same-store cash NOI growth of 14% included, first, quarterly effective blended lease rate growth of over 14%. Our blended growth accelerated each month during the quarter with 240 basis points higher than what we achieved during the fourth quarter and benefited from minimal concessions granted. Second, weighted average occupancy held strong at 97.3%, 100 basis points higher than a year ago. Third, annualized turnover was only 34%, decreasing by 530 basis points versus a year ago and 570 basis points over the historical first quarter turnover rate. These favorable trends have continued into the second quarter. Blended lease rate growth has continued to accelerate to 16% to 17% in April, with new lease growth of more than 18% and renewals are better than 15%. This is driven by robust widespread demand and our ongoing ability to capture our in-place 10% to 11% portfolio average loss to lease. Occupancy shows no signs of deterioration as alternative housing options, like single-family rentals and for-sale homes have become even less affordable versus multifamily. Based on current rents versus the cost of homeownership, it is 45% less expensive versus 35% pre-COVID to rent at home across UDR markets. Turnover remains light in April thus far. All else being equal, we expect second quarter blended lease rate growth to range between 15% and 18%, occupancy to average 97% to 97.3% and annualized turnover to remain well below prior year levels due to a combination of higher demand and our continued focus on the resident experience. These trends combined with the fact that we now have good visibility on 65% to 70% of our full-year rent roll gave us the confidence to meaningfully increase our full-year 2022 same-store revenue and NOI guidance ranges. We now expect to achieve midpoint growth of 9.75% for same-store revenue and 12.5% for same-store NOI on a straight-line basis. Relative to our prior full-year 2022 outlook, the drivers of our improved guidance ranges are as follows. First, we expect full-year effective blended lease rate growth of approximately 9% to 11%, which is 3% higher at the midpoint compared to our prior assumption. For the first half of 2022, we expect blended lease rate growth in the 15% to 16% range, implying a range of 4% to 6% in the second half. Across our portfolio and excluding the approximately 7% to 8% of NOI that remain subject to limits on renewal increases, we continue to see growth rates converge irrespective of market, location within a market, or asset quality. Second, we continue to expect occupancy to remain relatively high, averaging 97.2% to 97.4%, or a 10 basis point to 30 basis point improvement over full-year 2021 results. Third, we still expect controllable expenses to be limited to 2% to 3%. This is 100 basis points below that of our overall same-store expense growth guidance, which we increased by 50 basis points at the midpoint primarily due to rising insurance costs. Our updated guidance continues to imply second half slowdown in blended lease rate growth. As we approach more difficult prior year comps and regulatory restrictions on renewal rate growth remain in certain markets. There is little at present suggesting a deterioration in multifamily fundamentals. Any upside to this expectation would have a modestly positive impact on 2022 results, with the majority occurring in 2023 via higher earnings as we move throughout this year. Based on current guidance, our implied 2023 earnings would be in the low to mid 3% range, or approximately 50 basis points to 100 basis points above our highest earnings over the past decade. Moving on, collections continue to trend above 98% over time and our 2022 guidance assumes we ultimately collect 98% to 98.5% of build revenue. Our Governmental Affairs Team continuously monitors the regulatory backdrop and works with our teams in the field to develop action plans that address the less than 1% of our residents who remain long-term delinquent. This proactive approach benefits residents, the company, and our stakeholders. Finally, our ongoing innovation continues to bear fruit. Today, our 250 basis points controllable operating margin advantage over peers at a similar rent level has generated over $20 million of incremental NOI on our legacy communities. In addition, our unique self-service model combined with our other capital allocation competitive advantages and strong market growth has supported year-on NOI that is 7% above initial expectations for our more than $1.5 billion of late 2020 and ’21 third-party acquisitions. This equates to a weighted average current yield of 5%, up from the mid 4s at the time of acquisition. Given our embedded loss to lease and favorable market rent trends, we see a path to achieving our original underwritten year three yields in the mid to high 5% range roughly one year ahead of schedule. Looking ahead, we will continue to find ways that our ongoing innovation can beneficially impact our bottom line, as well as our residents' experience with UDR. As we have spoken in the past, we believe improving the resident experience increases retention, drives pricing power higher through pricing engine optimization, reduces controllable expense growth in the form of fewer vacant days, and can lead to UDR assessing a larger portion of our residents' wallets through ancillary services. We remain confident in our ability to achieve our target of at least $20 million of incremental run-rate NOI over the next 24 months through these initiatives while also progressing towards capturing much more over the long term. In closing, 2022 is off to an incredible start, which deserves a sincere thank you to all my colleagues for their hard work and innovative ideas that keep our company operating at a high level. And now I'll turn over the call to Joe.

Thank you, Mike. The topics I will cover today include our first quarter 2022 results and our updated outlook for full year 2022. A summary of recent transactions and capital markets activity, and the balance sheet and liquidity update. Our first quarter FFO as adjusted per share of $0.55 achieved the high end of our previously provided guidance range and was supported by strong same-store revenue growth and further accretion from our 2021 acquisitions. For the second quarter, our FFOA per share guidance range is $0.55 to $0.57, or an approximately 2% sequential increase at the midpoint. This is supported by continued positive sequential same-store NOI growth and accretion from recent capital allocation activities, partially offset by increased interest expense and higher G&A as we have enacted wage increases to better ensure employee retention at all levels. The same drivers led us to increase our full year 2022 FFOA and same-store guidance ranges. We now anticipate full-year FFOA per share of $2.25 to $2.31. The $2.28 midpoint represents a $0.02 or 1% increase versus our prior full year guidance and a 13.5% increase versus full year 2021. The increase versus prior 2022 guidance is driven by the following. A $0.04 benefit from improved NOI offset by approximately $0.01 each from higher interest expense and increased G&A expense. For same-store guidance, we have increased our full year revenue and NOI growth ranges on a straight-line basis by 125 basis points and 150 basis points respectively to 9.0% to 10.5% and 11.5% to 13.5%. Due to lower realized and expected concessions for the rest of the year, we increased our full-year same-store revenue and NOI growth ranges on a cash basis by a higher amount of 175 basis points. This narrowed the prior 100 basis point delta between our cash and straight-line same-store revenue guidance ranges to 50 basis points. Additional guidance details, including sources and uses expectations, are available in attachments 14 and 15D of our supplement. Next, transactions and capital markets update. After completing $1.5 billion of accretive acquisitions in 2021, our first quarter external growth activity was primarily focused on DCP investments and development. First, during the quarter, two DCP investments were redeemed, UDR’s investments in the projects totaling $58 million, for which we received life-to-date proceeds of $91 million, resulting in a weighted average IRR of 14%. We used a portion of the proceeds to fully fund a new $12 million DCP investment with an 8.25% yield as part of the recapitalization of a stabilized community. We have a strong pipeline of DCP opportunities currently under evaluation. Second, we delivered initial apartment homes at three of our active developments, one each in Denver, suburban Philadelphia, and suburban Dallas. The expected weighted average stabilized yield for these communities is approximately 7.2%. We also replenished and grew our development pipeline, with two additional starts, one each in Tampa and suburban Dallas at Vitruvian Park for a total budgeted cost of approximately $188 million. We believe both projects will be highly value-add. Additionally, we are scheduled to close on the acquisition of a land site in southeast Florida that is entitled for 300 plus apartment homes. Third, we commenced unit additions at 2000 Post in San Francisco. We have experienced strong demand for our unit additions at a deal in the same market and continue to evaluate similar opportunities across our portfolio. Across three active projects, we are adding 58 apartment homes with expected IRRs in the mid-teens. Moving forward, we anticipate expanding our redevelopment and densification pipeline to take advantage of the ongoing strengths we are seeing in the market. All told, we have a healthy and growing pipeline of DCP land and development opportunities. We also continue to evaluate wholly-owned acquisitions and target markets utilizing our portfolio strategy and predictive analytics frameworks. To accretively match fund these future uses of capital, we entered into a $400 million forward equity agreement during the quarter. Please refer to yesterday's release for additional details on recent transactions and capital markets activity. Moving on during the quarter and subsequent to quarter end, we further enhanced our ESG leadership by committing to invest a total of $20 million into several strategic ESG and Climate Technology funds. The investments within these funds are intended to be directed toward identifying in-home, property-wide, and more general innovative real estate technologies that are intended to help UDR, our residents, and others reduce our collective carbon footprint. Finally, our investment-grade balance sheet remains liquid and fully capable of funding our capital needs. Some highlights include, first, we have only $290 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 March 31, our liquidity totaled $1.7 billion and provides us ample dry powder to continue to creatively grow the company as we identify opportunities. Lastly, our leverage metrics continue to improve. Debt to enterprise value was just 22% at quarter-end, while net debt to EBITDA was 6.4 times, down from 7 times a year ago and remains on track for approximately 6 times by year-end. Taking 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.

Thanks. We've heard from some of your peers about delinquency and collection issues in Southern California specifically, and I recognize there's different sub market footprints and different kind of bad debt assumptions embedded in guidance. On the ground, what you’ve seen in Southern California through your portfolio specifically in terms of collections?

Hey, Nick, it’s Joe. Similar to our peers that have spoken to earlier, we are seeing something a little bit similar. We do have a decidedly lower exposure to Los Angeles. But our Orange County portfolio has seen similar trends. It does seem to be specific to Southern California, where we do have a little bit more of a B quality portfolio and lower income portfolio in Northern California. We saw AR balances pick up about $1 million on a quarter-over-quarter basis. Some of that's due to typical seasonality; we usually see January and February collections a little bit lower than trend. We also saw applications for government assistance pick up about $1 million on a quarter-over-quarter basis. Similar to what you heard, I think, at earlier calls, I think there were a number of residents that had been payers in the past that simply stopped paying and tried to take advantage here before government assistance funds expire at the end of March. To date here early in April, I am cautiously optimistic that those individuals are reverting towards paying in some cases. By the time we get to June, we may have more commentary for you on the trends that we're seeing there.

Thanks. That's very helpful. I think you talked about the commitment you made to the Prop Tech and climate-related funds. How did you think about sizing those commitments? And then what are your financial and strategic goals that you touched on, but what should investors expect out of those investments?

Yes, if you go back over time and look at what we've tried to accomplish here with the first two RET Funds and of course, there's the financial and investment return that we expect to get out of the fund. But more importantly, the $1.4 billion of revenue, the $400 million of expenses, the capital allocation and platform benefits. That's really what we've been focused on with the RET funds. You've seen a number of examples of that over the last couple of years. This is really an expansion of that. So when you look at the strategic fund, that $25 million commitment, is a mix of investors and limited partners that are focused on a more permanent capital-type vehicle for big-picture technologies that will benefit the entire industry. Think along the lines of CRMs, pricing engines, maintenance, and pricing—those type of items more on the strategic side. When it gets into the climate side, you can see that $10 million commitment we made in the quarter. In addition, a press release went out last Friday by RET, along with Essex and ourselves, being the family members of a housing impact fund, so another $10 million investment there. What we're really trying to do there is we've laid out our commitment to SBTi. Our plans to move forward with that and advance our industry-leading ESG efforts will get more focused on that. So looking at In-Home Tech, outside of Home Tech, and really having experts that we can tap into on a daily basis to give us access to the different types of technologies that are going to impact ESG and our carbon footprint on a go-forward basis. So that's really what we're focused on.

Thank you.

Yes, thanks. It’s still good morning out there. I just wanted to circle back on Mike's comments about the blended growth. I think you said 15% to 16% in the first half, but 4% to 6% in the second half. I realize comps get a lot tougher and maybe concessions are playing a role, where concessions had really burned off maybe by the middle of the year. What is the underlying assumption about market rent growth within your framework for this year? How has that changed? What's the potential upside to the guidance numbers if market rent growth is faster than what you're currently expecting?

Hey, Steve, it's Mike. I appreciate it. To your point, let me back up a little bit. You're right, we did say around 14% blended in the first quarter, trending at around 15% to 18% in the second quarter. When you look at that, we provided 15% to 16% in the first half. That compares to 10% to 11% we previously guided to. Now we think that back half is around 4% to 6% when it was previously around 4%. The way we look at it is basically trending our market rents. So when you think about how it should play out over the next, call it, six to nine months, we've looked at previous pre-COVID numbers, and it was right around 2023. It was around 4% to 6%. Again, we think that its historical numbers, Steve, and it should play out that way. We'll see how it ends up. But what I would tell you is 2022—it’s going to make minimal impact at this point if it costs 5% higher. It's really going to start playing out in 2023. I made that point in my original remarks; it could be upwards of 3% earn-in, which would be the highest I've seen in my 16-year career here at UDR.

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

No, it typically grows. It really depends on what happens in the third quarter. With the highest exploration period of time, what kind of growth—and it's really on a gross basis, not an effective basis. What we get at that period of time will really start to impact what that earn-in is next year. Again, we're pretty optimistic that, that 4% to 6% could trend higher. If it does, that will lead to a higher earn-in next year.

Hey, Steve, this is Toomey. I think one factor that's making it hard to forecast is the record low turnover number that we're having right now. As we come into the prime leasing season, does that tick up with these types of price increases? We've seen no sign of that in our notices that we sent out. That kind of points to the higher side if you will. Everybody else is having the same experience on turnover; they have more confidence in raising that market rent number. And that's Mike just hedging the right way, which is how much he is able to press gross rent with a low turnover number. If this turnover stays—traffic has been extraordinarily strong. We feel good about it. Most importantly, what’s holding us back is that we have 65% of the revenue already figured out for 2022—what's setting us up for 2023 looks pretty strong right now.

Great. Thanks. That’s it from me.

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

Yes. Hey, Tony, good to hear from you. Maybe start with current development pipeline. I do want to mention what's going on there. We did add a couple of new starts here in the quarter, so taking that pipeline up to around $700 million. If you bifurcate that into two groups, you look at the lease-up deals that are going fantastically well, kind of mid to high six stabilized yields at this point. So pretty great performance on those. The newer starts trended towards the higher 5s to low 6s, so pretty consistent with where we've historically been. Importantly, on your question around cost and inflation, majority of those costs on that $700 million pipeline are fully bought out at this point. I think we only have about $10 million of hard costs that remain to be bought out, and we're carrying a contingency in the high single digits for that. So minimal risk from a development cost standpoint on those. As you think about what we have coming up in terms of new land, we bought a parcel in Fort Lauderdale. We have a number of opportunities that we started to allude to with the equity raise and some of the upcoming uses of capital. We've got Southern California, Inland Empire, Denver, D.C., as well as Dallas. We've got a pretty robust pipeline we're working through on the land side. What I'd say is near-term, definitely underwriting above inflationary type of cost increases. We have seen pretty substantial cost increases over the last 12 months, a lot of that on the hard cost side driven by labor in some of those hotter Sunbelt markets. From a yield standpoint, we're holding pretty close to where we've historically been. Current yields kind of 5.25-ish and on a stabilized basis kind of high 5s, 5.75%, 6-ish percent. When you think about the value creation margin, still commensurate with what we've talked about historically when you look at a 3.5 to 4 cap type of market, we're still looking at 150 to 200 basis points of margin or value creation, which is in line with history. So we got a little bit juicy there for a while when cap rates compressed and yields held up, but now we're back to normalcy.

Okay. That's real helpful. And those—do you have to do much with rents compared to where they are today?

Yes. So the 5.25%, the way we look at it on a current trend or current basis, it’s a current rent in the market for what that asset would attain today relative to a trended cost basis. So having an above inflationary cost trend on that gets you to 5.25%. If we keep those costs where they're at and as we go through development and lease-up and get to stabilization, we'd expect those rents to grow at kind of long-term averages of plus or minus 3%—that gets you to roughly 5.75%. Yes. So what we effectively had when you look at the combination of write-offs plus reserves, we've been able to go back over time throughout the last couple of years. Collections over time typically get to around 98.3% in this environment. You can think about a net bad debt number of 1.7% between a combination of write-offs in the quarter and incremental reserves if there are any to that extent. When you look at our bad debt versus reserves in the quarter, accounts receivable was just over $24 million, about $1 million quarter-over-quarter increase. The reserve against that came down slightly to roughly $12 million, so about 50% reserved. The reason it came down was that we continue to have better and better history over time of getting up to that 98-plus percent number. The other way to think about it is you have $12 million of unreserved risk. If you look at three different buckets, we have about $11 million out there in government assistance applications, which we believe is close to money good over time. There are just delays within those processes. You have another $7 million of partial payers over time. These are individuals that have demonstrated a willingness and ability to try to make good on their rental payments. Sometimes it just takes them longer than normal. We think over time, those will start to come in, maybe not to the 100% degree, but definitely some of those will come in. About $6 million of long-term delinquents are residents that despite all our efforts to work with them on government systems, on payment plans, on relocation options, things of that nature, they have really settled in. Those individuals are the ones that we're continuing to work with. If they choose not to, then those are the ones that we'll be going to court with and trying to get those units back over time.

Yes, Tony, just to add, this is Toomey. I think the bad debt—this whole system we've been through over the last couple of years, the team has done an exceptional job of getting out in front with the government aid, getting in front of our residents, understanding where the situation is, working with the people we can work with. For the ones to be a little bit troublesome, the court systems are starting to open, and they see that piece of the equation. I think as the year goes by, this gets back to the 98% to 98.5% collection-type process. I'm not sure we'll get back to our pre-COVID of 99.5%. I think it's just going to be challenging with some of these municipalities to get there. If I'm thinking about ’23, I think we're generally running to keep that in mind at 98.5% next year with hope we get 50 basis points above that. This year, I think the story is just not over, and it's just ground out.

Hi, everyone. Thanks. In terms of the guidance, first question is just on interest expense; that's going up. Joe, maybe you can talk about what drove that higher?

Yes. Hey, Nick, it really has to do with the floating rate side of the equation. We’ve done a pretty exceptional job over the last two to three years going after our maturity profile, doing a lot of refinancing and lower-cost debt down in the 2% to 2.5% range versus the kind of low to mid 3s in place today, so low to mid— So we've done a great job on that front. It doesn't have to do with anything that we had planned in terms of new issuance or refinancing activity. It's all floating-rate oriented. We've got about $400 million plus or minus of floating out there, call it, 6% to 7% of total debt stack. As the curve has ticked higher here to start the year with Fed rate hike expectations, we just updated for where the curve is expected to be. They had about a $2.5 million or $0.06 to $0.07 impact on the outlook here.

Okay. Got it. As we think about there are some moving parts for the rest of the year in terms of you may raise debt or you may not, right? You have that guidance range of $0 million to $250 million of debt issuances. You have that swap expiring on a piece of the term loan. Commercial paper rates presumably going up. For those pieces, can you give a feel for if that's already factored into guidance? Or if there's also a chance that maybe interest expense could creep higher than guidance because of some of those issues?

Yes. I feel pretty good now at this point in terms of where we're at. We have a little bit of cushion in there, most likely. We've accounted for a potential range there in terms of $0 million to $250 million, but not necessarily certain that we'll act on it. We're going to evaluate the environment as we go forward later in the year.

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

Yes. Hey, Brad, it’s Joe. Stepping back a little bit, we did do the equity here in the first quarter towards the end of the quarter, $400 million at just about 57, 57 net. What we saw at that point in time was an increasing opportunity across all of our value creation arms between develop, our capital program, redevelop, development, and acquisitions. After six months of no equity issuance, de minimis external growth where we sat back and really couldn't find opportunities that fit with what we were trying to do from a platform perspective and an accretion perspective, we are starting to see more of those opportunities today. We felt that it was the right time to do the equity. We do have a plus or minus $100 million pipeline of opportunities there that we think will get some, hopefully, all done over the next 12 months. We do feel very good about continued deployment on the DCP side. On the development side, we mentioned the Fort Lauderdale land acquisition. We've got $100-plus million of other land sites that we're working through at various points in the process on. That will add to the uses, as well as forward uses and capacity there.

Okay. Got it. Has there been any noticeable change in competition as you're looking at new acquisitions?

Hey, this is Andrew. What I can report back to you is that there's a very active market that we're participating in. There's a continued wall of capital looking to increase their exposure to apartments. Listings on new deals are not diminishing—in fact, there's a record number of deals year-to-date. It's up about 60% over 2021. The pricing side really varies based on location and asset quality and buyer type. The buyers are being a bit more patient and looking to be opportunistic with pricing retrades, and sellers are seeing thinner buyer pools due to the abundance of options available on the market. Movement in interest rates is clearly the largest driver that's impacting pricing, levered buyers seeing more of an impact on pricing. Unlevered buyers, low levered buyers are still very vibrant in the market. On average, cap rates compressed roughly 100 basis points over the last year to about that 3.25% to 3.75% range. As buyers were able to underwrite and capture the significant mark-to-market in the rent rolls. Today, we're seeing cap rates closer to 3.5% to 4% and a little bit higher. Markets like San Francisco and New York haven't been as impacted as they continue to have a runway of rent growth versus communities in the Sunbelt that have already benefited from significant rental increases in the run rate over the last several quarters. What I'd end with is it's important to remember that although pricing has recently moved flat or slightly down, almost all assets across our markets and across the country have seen a rapid increase in pricing. Even with those pricing changes, they are still more valuable than they were 8 to 10 months ago.

Got it. Thank you.

Yes, thanks guys. On the last call, you talked about entering 2023 with a mid- to high single-digit loss to lease. I was just curious if the updated guidance assumes that you recapture some of that loss to lease. So you'd be entering next year at a lower loss to lease position? Or do you still think that you could be within that range?

Hey, Austin, it's Mike. We actually still think we're in that range as of right now because with the updated guidance in that back half, would you think market rents are slightly higher than what we provided last quarter. So that will help with that loss to lease as we enter next year.

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

Yes. Hey, Austin, it's Joe. Near-term, we feel very good about the supply picture in terms of remaining relatively constrained this year and our markets and submarkets were up a bit 10% to 20%. But that's only about 1.7%, 1.8%, 1.9% of stock—very manageable level, especially given the level of demand that we're seeing out there. No real concerns near term. Some markets, as a percentage of stock or year-over-year growth are a bit more concerning. Some of the Sunbelt markets have a percentage of stock up in the 5%, 6%, 7% range. Coastal markets still have some supply coming through from pre-COVID starts. That starts to dissipate on the coast next year. Permits have dropped off quite a bit during the downturn in the Coastal markets, as capital continues to flow into Sunbelt. You could see some pressure in the Sunbelt, like permits still up 40% versus pre-COVID. You'll probably see some pressure coming from markets like Raleigh, Atlanta, Charlotte, probably Austin and Nashville continuing to see some supply pressures, but balanced with really good demographic population growth.

Hey, Austin, this is Toomey. Joe did a great job of running down the markets. A couple of things to really weigh is housing as an industry. You've seen it most recently in the single-family side, where the overall demand for household formation is about 4 million annually, and we're still producing about 2 million. Single-family has taken a little bit of a hit lately with the rate increases and price run-ups. That pushes people to stay in apartments longer. I'm not overly worried about the supply equation, given single-family probably has to take a pause or retreat. That gives us a strong '22 head into '23, again, another wind at our back that looks favorable for us. With the difficulty of trying to build in this climate, it will slow down the supply equation. That translates into pricing power on Mike's side. I feel good about that part of the business. We are seeing strong demand; I mean, extraordinarily strong demand across all our markets still.

Hey, good afternoon, guys. I wanted to come back to this question about or the topic about earn-ins. While the rate of change might begin to decelerate, rents are still rising in absolute terms, and that creates embedded growth in '23 as a starting place of around 3%. You have growth on top of that based upon wherever you can take occupancies and leasing spreads. Is that the right way of thinking about it?

No, Rich, you just nailed it right on the head. That's the way we think about it. We think about that back half. A lot of that is going to be gross rents. We entered this year with higher numbers, especially relating to the Sunbelt. We'll see how that plays out. But we're pretty optimistic that 4% to 6% could trend higher. If it does, that will lead to a higher earn-in next year.

Can I ask one follow-up question on renewal spreads? Your renewal spreads are super impressive, especially in April. Can you walk us through why you're able to push those renewals as much as you can?

It's a really good question. Again, you hit it right on the head. What we're experiencing is with these market rents rising the way that they have been, and we really pushed hard coming out of the gate in January, February, that allowed us to push aggressively on our renewals since the new side of the equation, market rents were supporting those growth rates. As we've gone out there, we were sending out the 14% to 15% range we've been seeing through July at this point.

While there's a lot of cyclical or structural dynamics at play, the record low turnover levels, the relative affordability and reasons to want to live in apartments are also really important. I know you were kind enough to host us in Chicago last December and spend a lot of time talking about our platform and what we're focused on the customer experience. That's starting to bear fruit in terms of the data we’re utilizing to understand resident decisions, change our actions, and ultimately entice them to stay.

All right, guys. Thank you.

Thanks for the time. I wanted to come back to your comments on development. Can you give us a sense for how broad based the pricing is for your acquisitions?

What we're starting to see more broadly is that the pools are thinner, like I talked about. You're seeing less of the pricing move above or get to the levels that we saw earlier in the year. The best assets are still pricing flat to slightly up, but the ones further out that benefited from the demand in the marketplace are the ones experiencing larger price changes. Most often, we're seeing this in assets that have run the most in pricing recently and those attracting buyers using the highest leverage points.

Thanks. That’s helpful.

Hi, everyone. Thanks. First one, just in terms of capital allocation. The Southeast Florida parcel, I don't think you have any investments there. Typically, you guys are more of a clustering business; are you planning to increase your presence in Fort Lauderdale post potential development?

Hey, Neil, it's Joe. We do actually have one asset down there that we've had for a fairly extended period of time. It’s a little buried in terms of visibility on our typical market disclosures. We grouped that into the other market category. We do have an asset there for 636 homes. We’ve had exposure there. It's a market between Palm, and we’ve kept our eye on it for a while, trying to find opportunities. The hope would be that we could continue to grow that exposure over time.

Sure. Thank you, guys.

Hi, thank you for taking my questions. First, you're running at about 97% occupancy and recently raised $400 million. Can you help us understand are you leaning more towards an offense or a defensive position?

I wouldn’t say that the raising of equity signals that we're positioning for more defensive times. We did that because we had a good cost of capital and opportunity set that was accretive for investors. Those assets now that we bought at low 4s, they grow over time. I'm not sure the next round of capital deployment is going to be quite as accretive, but we hope that it will.

Great. Thank you.

Thank you for your time and interest in UDR. I started off the call with the strongest operating environment in my career, and I cannot reemphasize that. The industry is in a great position. A lot of participants are doing very well, creating a lot of value. As we look at UDR and its uniqueness and how we can sustain that and provide exceptional returns, it always starts with the culture of the enterprise. We've done well during the environment. It's our processes, both decision-making, discipline, and data. Things that make us unique are our innovation, our technology applied to deliver margin advantage. I thank all my colleagues for the strong quarter. We're approaching prime leasing season, excited about what the platform will do to continue to grow. I look forward to seeing many of you at NAREIT in a few weeks. Take care.