UDR Inc (UDR) — Q4 2024 Earnings Call Transcript

Thank you, and welcome to UDR's quarterly financial results conference call. Our press release, supplemental disclosure package and related investor presentation were distributed yesterday afternoon and posted to the Investor Relations section of our website, ir.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Statements made during this call, which are not historical, may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statement 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 Fourth Quarter 2024 Conference Call. Presenting on the call with me today are President, Chief Financial Officer and Chief Investment Officer, Joe Fisher; and Chief Operating Officer, Mike Lacey. Senior Officer, Andrew Cantor, will also be available during the Q&A portion of the call. First, I'd like to congratulate Mike on his well-deserved promotion to Chief Operating Officer; and Joe for his appointment as Chief Investment Officer. Both Mike and Joe have been exceptional leaders, driven value creation and have positively influenced UDR's culture. As Joe transitions from his role as CFO, we have commenced an executive search process to fill this critical role. We are early in the process and we'll update you as progress is made. Moving on, in conjunction with our earnings release, we published a presentation that highlights our outlook for 2025, completed with what we see as the drivers of potential outcomes. Our prepared remarks align with the presentation, and those on our webcast can see the slides on your screen. We will resume our usual format for the balance of earnings calls in 2025. Next, turning to Slide 4. Key takeaways from our release and 2025 outlook are: one, fourth quarter and full year 2024 FFOA per share results, net guidance expectations, while same-store results exceeded our guidance midpoints. Two, based on consensus estimates, we expect economic growth and apartment demand will remain resilient in 2025. This growth profile should be enhanced by supply pressures abating in the back half of the year from the historically high levels experienced in 2024. Three, ongoing investments in innovation, including advancing our customer experience project should continue to drive incremental NOI growth in excess of the broader market in 2025. Fourth, despite an elevated cost of capital, we are positioned to take advantage of external growth opportunities when appropriate. We will continue to utilize various sources of capital, including existing joint ventures and operating partnership unit deals to accretively grow the company while heeding cost of capital signals. Fifth and final, our balance sheet is well positioned to fully fund our capital needs in 2025 and beyond.

Thank you, Tom. Topics I will cover today include our fourth quarter and full year 2024 results, including recent transactions, the 2025 macro outlook that drives our full year guidance, and the building blocks of our 2025 guidance. First, beginning with Slide 5. Our fourth quarter and full year FFO as adjusted per share of $0.63 and $2.48 achieved the midpoint of our previously provided guidance. Additionally, our same-store results meet expectations with NOI growth that was above the high end of our guidance range. During the quarter, we shifted to an occupancy-focused strategy similar to the fourth quarter last year and built occupancy going into 2025. Occupancy trended sequentially higher for each month during the fourth quarter, resulting in a 50 basis point sequential improvement versus the third quarter. As anticipated, this occupancy trend resulted in slightly lower blended lease rate growth versus original fourth quarter expectations but was the right decision to maximize NOI in 2024 and place our portfolio in a position of strength as we enter our traditional leasing season. Thus far in 2025, we have maintained occupancy above 97% which is approximately 30 basis points higher than our fourth quarter average. Underlying market rent growth has turned positive sequentially and is following normal seasonal patterns. New lease rate growth has largely bottomed across our regions and renewal lease rate growth remains healthy in the mid-4% range. We are encouraged by these results. Turning to Slide 6 and our macro outlook. As in years past, we utilized top-down and bottom-up approaches to set our 2025 macro and fundamental forecast. Our 2025 rental forecast of 2% was informed by third-party forecasts and consensus expectations for a variety of economic factors that drive rent growth and our internal forecasting models. Among the positive factors are favorable GDP, job and wage growth, a continued decline in home ownership rate due to elevated mortgage rates, and lower total housing supply. We combined this top-down forecast with a bottom-up growth estimate built by our regional teams as they best understand local supply and demand dynamics in their markets. Our 2% rent growth forecast for 2025 is slightly conservative when compared to prominent third-party forecaster estimates in the mid-2% range.

Thanks, Joe. Today, I'll cover the following topics. How our 2024 results and other drivers factored into the building blocks of our full year 2025 same-store revenue growth guidance, an update on our various innovation initiatives, expectations for operating trends across our regions, and our 2025 outlook for same-store expense growth. Turning to Slide 14. The primary building block of our 2025 same-store revenue growth guidance includes our embedded earn-in from 2024 lease rate growth. Our blended lease rate growth expectations for full year 2025 and contributions from our innovation and other operating initiatives. Starting with our 2025 earn-in of 60 basis points, which is about half of our historical average and in line with our earn-in from a year ago. The 50 basis point sequential increase in average occupancy we achieved during the fourth quarter of 2024, led to slightly lower blended rate growth and resulted in earning towards the lower end of the range that I spoke to on our third quarter earnings call. We believe this was a prudent operating strategy that will position us well as 2025 progresses. Next, portfolio blended lease rate growth is forecast to be approximately 2.5% in 2025. This is 100 basis points higher than what we achieved in 2024 which matches our expectations for year-over-year rent growth improvement. We expect blends will be lighter through the first half of 2025 before improving during the second half of the year as supply pressures lessen. This dynamic, if accurate, means that blended rate growth should contribute approximately 90 basis points to our full year 2025 same-store revenue growth and have a positive flow-through impact on 2026 earn-in. Underlying our blended rate growth forecast are assumptions of approximately 4% rate growth in 2025 and approximately 1% new lease rate growth on average.

I will now turn the call over to Joe.

Moving on to Slide 8. Third-party data providers are forecasting full year 2025 multifamily deliveries in the U.S. and in our markets to be similar to the historical averages. Based on development completion data, peak deliveries occurred in the middle of 2024 and should trend downwards below long-term historical averages in the second half of 2025. We are cognizant that there will be supply slippage as we move through the year, and that lease-up concessions could remain prevalent for a period of time after the pace of new deliveries abates. Where concessions move throughout 2025 will be a key driver to our ability to capitalize on our rent growth forecast.

At the top left, our residents' financial health remains resilient with rent-to-income ratios below the long-term average. Second, at the top right, relative affordability versus alternative housing options remains decidedly in our favor at roughly 60% less expensive to rent to own, a 25% improvement from pre-COVID. This supports a stable to declining homeownership rate and absent a major correction in home prices or a significantly more accommodative long-term interest rate environment, we do not expect this dynamic to change. Third, at the bottom left, the latest census statistics indicate that the largest U.S. age cohorts remain in their prime renter years. This should provide continued support for long-term rental demand. And fourth, at the bottom right, while multifamily deliveries are expected to remain above historical average levels at the beginning of 2025, development start activity has significantly retreated and is down approximately 65% from recent highs and is now well below historical averages. This should benefit rent growth in late 2025 and beyond.

We are excited that the company we chose to support and help build is expected to be acquired by an industry leader and exchanging our notes for equity is the prudent long-term economic decision. We have received various inquiries pertaining to the risk in our debt and preferred equity book. So here are important considerations to help provide transparency. 1,300 Fairmount was our largest investment risk. And by moving that investment to nonaccrual status and taking a reserve, we believe we have largely derisked this book of business. There remain 2 investments on our watchlist, totaling approximately $40 million, which would represent $0.01 or less than 0.5% of FFOA per share in the event of nonaccrual. However, for these investments, we have been encouraged by their recent operating trajectories and the senior loans for each do not mature until mid-2026.

Regarding fraud, recall that in mid-2024, we implemented a variety of AI-based detection measures, process improvements and credit threshold reviews to enhance our upfront resident screening. We have seen the benefits of these efforts in recent bad debt trends, resulting in more favorable results in recent quarters. Rolling all this up, our 2025 same-store revenue guidance ranges from 1.25% to 3.25%, with a midpoint of 2.25%. The 3.25% high end of our same-store revenue growth range is achievable through improved year-over-year occupancy, additional accretion from innovation and blended lease rate growth that occurs more ratably throughout the year or at a higher level than our initial forecast. Conversely, the low end of 1.25% reflects the inverse scenario, with full-year blended lease rate growth closer to flat, some level of occupancy loss and delayed income recognition from our innovation initiatives.

First question is just in terms of the guidance, helpful all the details on markets and on same-store revenue. Can you just give us a feel, though, in terms of blended rate growth how that could trend through the year for the different markets, particularly as you think about sort of Sunbelt versus the rest of the portfolio? Is there more of a kind of convergence on blended rent growth on the regions as you get into the back half of the year?

Nick, it's Mike. I'll take that. I think, first and foremost, maybe starting high level with a total company just as it relates to that 2.5%. I think, first of all, it starts with our strategy. Obviously, you've heard us talk about this over the last 6 to 9 months really driving our occupancy up during a period of time where expirations are low. And given the fact that we've had historically low turnover, that allowed us to drive occupancy to about 96.8 during the quarter. Happy to report today, it's closer to 97 to 97.2 and so that's giving us a lot of tailwinds to be able to drive our rents as we move forward. But as you think about that 2.5%, it's important to think about the cadence of it. And so in the first half of the year, our expectations as we continue to deal with elevated supply it's around 1.4% to 1.8% growth. And then when we get into the back half of the year, closer to about 2.8% to 3.2%. So again, first half of the year, call it, 1.6% at the midpoint. That is right where we landed for 2024 in the first half. In the second half of the year, that 3% is still about 70 to 90 basis points lower than the pre-COVID average. And so we do have seasonality built into that number. We expect 3Q would be higher than 4Q, but again, it is lower than most pre-COVID norms. Specific to the regions, I think it's probably good to start on Page 15, where we were able to go through just some of the expectations around the different regions. For us, what we expect is obviously a higher earn-in for places like the Coast, East Coast being higher than the West Coast. Right now, we think earn-in is 1.3 for the East, about 80 bps for the West Coast and then we were negative 1 for the Sunbelt. Specific to the blends though, Coast is looking very similar to what we achieved in 2024. Our expectations are blends will be roughly around 2.5% to 3% on the East. It's going to be about a 1 to 1.2 contribution to our total revenue in that region. On the West Coast, probably closer to plus or minus 2.5% blends this year. And again, that contribution is pretty close to 1% as it relates to total revenue. And then as you get into the Sunbelt, blends this year we’re thinking probably closer to 60 to 90 basis points this year and a relatively small contribution, only around 30 or 40 bps on the difference is where other income comes in. And so for us, we had about 8% growth in 2024. Expectations are another year where we're expecting around 7%. And I've seen a lot more growth in places like the Sunbelt. So similar to 2024, expectations are, we could see anywhere from 10% to 12% growth in the Sunbelt versus closer to, call it, 5% growth on the coast.

Very, very helpful. Second is just on investments. And Tom, I think you said the balance sheet set up pretty well for you to decide to do more investments. I guess the guidance is for you to be a net seller this year. So how should we think about sort of where the focus is going to be on investments? And is there actually some sort of capital built into the plan that if you were to do acquisitions, you don't necessarily need to raise new capital and there could be some benefit if acquisitions actually pick up?

Nick, this is Joe. Maybe 2 things on that one. I'd say number one in that seller component, that's really a byproduct of a couple of sales that we have teed up last year that happened to slip into early January. So those are really related to neutral funding for last year. So I wouldn't read too much into us looking like a net seller. That's more just a '24 issue and timing issue. As it relates to capital and deployment, I think you're going to see us remain fairly opportunistic on that front. We've continued to advance discussions with our joint venture partner, LaSalle and their capital stores, which after being on the sidelines for kind of 12 months as they went through a global mandate review, happy to report, we had meetings with them earlier this week, and we are back in action and looking to deploy capital with that partner. On the DPE front, as we've said in the prepared remarks and previously disclosed, we think we've really kind of cleared the deck on that front from a risk perspective. And so now we're back into normal course business and we had a couple of really good payoffs there in the fourth quarter as well as some effective payoffs this year. So we're focused on redeploying capital on that front. When you get into the development side, we don't have much of a pipeline today. But as we continue to get more optimistic on where rent growth goes in '26 and '27, we do expect to see maybe 2 to 3 starts coming out of the development side this year, including one possible here in the next quarter.

You mentioned that where concessions trend in your markets will be a key factor in achieving your outlook. So could you just talk about where concessions are today and sort of where you think they might go as we progress through the year?

Eric, I'd tell you, first, it goes back to kind of finishing up on a strong note. So coming off a very strong 4Q, this positioned us obviously with high occupancy and our turnover continues to trend down. And so right now, what we're seeing in January, further momentum, again, occupancy above 97% today. Turnover in January was down another 500 bps on a year-over-year basis. And our rents and other income are tracking with our expectations for the first half of the year. And so we are getting more active as we try to drive our market rents up, and we're driving our concessions down. We're right around a week in January, and we're starting to push that down to sub-1 week as we move further into the first quarter. Concessions are coming down a little bit right now. And again, I think that's part of our strategy to drive occupancy now put our focus on driving our rents out.

That's helpful. And then I guess as far as the new CIO role, can you maybe just talk about the rationale for the change there from CFO? And then Joe, if there's anything that you're expecting to do differently in this role is the company's capital allocation strategy is going to change at all? Or if it's more about processes, just anything that's going to be different now versus before?

Eric, I think I'm always striving and the room is striving to get better. And so I'd start off with first as my prepared remarks, congratulations to Mike and Joe for promotions and assuming additional responsibility. As part of my role and the Board as well as the executive team is to push ourselves to get better and deepen our talented bench. And I think this opens up opportunities under both of them to advance people's careers and their skills and ability to generate shareholder value. And with respect to the CFO, Joe has been an exceptional CFO for the company for 8 years. I don't want to say you get stale in the job, but you become a key part of our success. But I'm looking to say, 'Gosh, how can we get better as a team?' And it opens up a slot. And I think with Harry retiring and Joe stepping in the CIO, working with Andrew and the team there. He brings a fresh perspective. I would expect us to continue to have a lot of success in the investment area and we'll commence a search for a CFO. I think it's a very attractive position and a very stable, capable quality and team member for our future. So that's how I've been thinking about it, and the group has been always along in this conversation about how do we get better as a group, how do we get better as a company. And I think it prepares us that way. And again, growing talent is a critical element of our long-term success.

Mike, I was hoping you could walk through the line of sight on other income a little bit same-store revenue growth contribution year-over-year from that bucket in the guidance. We're just trying to figure out if this number goes down as Wi-Fi rollouts move through the system? Or if this could say even or reaccelerate in the out years?

Thank you for the question, Jamie. First, regarding other income, we have a strong history of driving growth, having focused on this for over 10 years. We not only aim to increase our revenues each year but also enhance our margins. Currently, we have about $60 million in potential net operating income available from various initiatives that we are evaluating and prioritizing. Last year, we achieved 8% growth in other income, and we anticipate another strong performance this year. Other income constitutes around 11.5% of our total revenue, which translates to approximately $180 million out of our $1.5 billion in same-store revenue, and the outlook appears positive. Initiatives like the Wi-Fi rollout, package lockers, and amenity areas are significantly contributing to this revenue stream. We estimate that about 60% of the 7% growth expected in 2025 is already in place, largely due to the extensive groundwork we've done with the Wi-Fi rollout. We still have about 10,000 to 12,000 units to install throughout this year. Overall, we are optimistic about our other income category at this moment.

Jamie, I want to add that we prioritize other income as a company, especially in the investor space. We've discussed customer experience extensively in the past, and you're witnessing the positive results with our turnover decreasing both in absolute and relative terms. This initiative impacts all areas. As we improve customer experience and reduce turnover, it will strengthen our pricing power, increase other income, improve occupancy, and lower turnover costs, both capitalized and expensed. You should continue to see benefits from this initiative, which may not directly appear in other income but will be felt throughout the organization. So please keep that in mind.

Okay. That's very helpful. But do you think as we look ahead in the next few years, like at some point, does it become a headwind to the growth rate? There's enough still that you can keep it going for a while in terms of your growth rate?

This is Tommy. I think like a lot of things in life. It's a flywheel. And customer experience projects are going to spawn off many more new ideas about other income aspects and our relationship with our customer because they're going to be with us for a longer period of time. So I think it's premature to kind of highlight some of those. Why? Because they're in early stages of experimenting and finding out what customers respond to and don't. But it is the cornerstone of how we can build out a deeper pipeline of those opportunities in the future to backfill it. Clearly, I'm with you, if you don't keep innovating, you eventually run up against your own success. I think the case here is continue to innovate, use data, use that aspect of it to convert to cash flow, if you will. And we'll find out where that margin keeps growing, if you will. But that's essence the long view of that customer experience project.

Jamie, we're definitely leaning towards a position as we move through '25. When you examine the differences between the green and red buckets, you will notice significant variations in blended lease rate growth, fluctuating by around 500 basis points depending on the market. The yellow markets fall somewhere in between. As we progress throughout the year, as Mike hinted earlier with our regional revenue performance data, we will observe some of the red markets starting to improve in comparison to the East and West Coast markets. With a substantial decline in Sunbelt supply, while it remains high in absolute terms, we anticipate it will decrease notably from where we are in '24, which we believe will enhance pricing power throughout this year. As we look ahead to '26, the reason the East and West Coast markets won't experience the same supply decline is mainly due to longer development lead times and the delivery of more blended high-rise products that take longer to develop. By '26, we expect overall supply to drop by over 30 percent across all three regions, leading to fewer markets remaining in the red and yellow classifications.

Yes, Joe, I know you attended NMHC, and I'm curious about the general discussion around development. Everyone seems to be suggesting that 2025 will still be a transition year with high supply, but that 2026, 2027, and beyond look promising. I'm interested in the conversations regarding new development and it seems like your team might want to initiate some new projects. What is the risk that everyone perceives the same opportunity and starts construction sooner rather than later?

Yes. Great question. I do think everyone is generally seeing the same perspective about the future. As we approach 2026 and 2027, looking at some of the slides we've shared regarding supply deliveries, we anticipate seeing less supply with very strong relative affordability, hopefully maintaining demand. There's an expectation for significant growth during those years, which certainly excites developers. However, translating that excitement and vision of the future into actual construction can be more challenging. We've noticed a slight rebound in construction financing from banks, with better availability of capital. However, the spreads remain relatively high at around 300 basis points. The larger challenge seems to be securing equity from limited partners. The question is whether you can raise the capital needed to invest in development projects and initiate starts today. Many of us believe in the potential, but capital availability is a concern. Therefore, I’m not too worried about a large surge in supply; if it occurs, it seems more likely to be an issue for 2028. We still have a good runway for the next few years.

And it's a competitive window for acquisitions right now. Still get out there and see what we can find.

Great. Maybe just quickly on Slide 16, maybe for Mike. Just as you look at the expectations for expense growth in '25 and there's some big deltas from where '24 came in. I'm just looking at like personnel loss was an elevated number in '24, coming down much more in '25, but real estate taxes kind of going the other way around. Just where do you see the risks on more slide? And how have you sort of thought about that in the budget?

Got it, Steve. I'd say first of all, thinking about '24 and '25. And specific to personnel. Just a reminder, we had the cars refund that we had to deal with last year. And so our personnel cost expense was up about 11%. And that's mainly because of anniversarying off of that. Now we're back to kind of a normal run rate, if you will. And so when we look at our expenses, I mean, we would have been around, call it, 3.5% this year if we didn't deal with that anniversary. Things feel pretty good. The team has been doing a lot around all the different initiatives. We talk a lot about other income, but they've made a lot of progress in things like efficiencies and how we're utilizing technology, try to drive down some of those costs. And we're also doing things with our vendors trying to consolidate that. That's playing out in some of these numbers that you see here today. And so for us, it feels good going into '25, we ended on a good note in '24, and we're off and running in '25.

On the real estate tax front, we achieved some successes with appeals activity in 2024, resulting in a slight increase in the mid-3% range. We're focusing on similar deals, particularly probates in California, aiming to reduce the initial estimate of 3.5%. Regionally, most markets are relatively consistent, though Seattle stands out with declining values, leading us to project negative year-over-year real estate tax growth there. Conversely, we're seeing higher rates and tax growth in Boston, while Nashville faces additional pressure due to a 4-year reset. Overall, we anticipate most markets will fall within the 2.5% to 4.5% range.

Great. Joe, at the beginning of the call, you mentioned that lower supply would benefit late '25. Please confirm if that's correct. My question is really about the level of confidence here and how it relates to guidance, specifically the upper end versus lower end versus midpoint.

Yes, we do expect to see supply continue to trickle down throughout the year in terms of the deliveries. And on Page 8, we have demonstrated for our markets, which you see it does trend down that really plays into Mike's commentary earlier on blends. And so our first half blend assumption being roughly in line with what we saw the first half of '24. And then we start to see that blended number lift as we go into the second half, kind of peak out in 3Q and see some seasonality going into 4Q with a declining a little bit. That's driven across the board, but we did talk about seeing Sunbelt start to accelerate a little bit more as we move throughout the year as they do see a more significant decline in those deliveries. And so I think there's a couple of things that give us a little bit of comfort with that in terms of the higher second half versus first half. We mentioned now the decline in delivery activity, which should help. The other pieces are relative affordability continues to be strong. And obviously, demand environment continues to be strong. So lifting that second half blunt rate growth assumption up into the 3s, which is still well below what we were at pre-COVID. And we're kind of getting into more of a pre-COVID norm when we get into the back half of the year and definitely going into '26 that gives us the comfort on the guidance piece. I do think the other thing I just want to mention, too, Jeff, as we kind of think about this, if you go to Page 14 within the presentation, I'll give Trent just a second there to get it ready for the webcast. But Page 14, when you look at these assumptions between earn and blended lease rate growth, innovation and then occupancy and bad debt. In totality, we get to that 2.25% revenue number, which is basically the exact same as what we put up in 2024. And so we got some questions overnight on the 2.5% blended lease rate growth, which we're talking about right now. But because it is more back half weighted, you can see in there only a 90 basis point contribution coming off of blended lease rate growth. Typically, if you are in a normal seasonality curve, that 2.5% would translate to 1.25%. So it really tells you that the revenue contribution is pretty typical with what we saw in 2024. So we haven't assumed a lot of acceleration in that revenue contribution and the blends that they don't come to fruition in the back half more of a '26 earn-in issue instead of a 2025 guidance or revenue growth issue as most of these somethings look pretty spot on with what we delivered in 2024.

Yes, I wanted to mention a couple of things. We have recently transitioned to implementing Funnel as our CRM this year, and we are very excited about it. This change is going to enhance our relationships and ultimately make us more effective and efficient, allowing our central team to focus on new ideas without getting bogged down by back-office tasks. This rollout will occur over the next 3 to 6 months, and we're looking forward to it. Additionally, we are pursuing various technology-driven initiatives to improve our resident selection process and identify potential issues before they become a problem. This includes measures like ID verification and proof of income, ensuring we capture the necessary information. We began rolling this out in the middle of last year, and although our occupancy dipped slightly as we implemented these changes, we are now seeing positive results. For example, our average deposits have increased nearly 20%, our co-signers are up by 1% to 2%, and our average credit scores have risen by about 20 points, now closer to 730 compared to 710. We believe these improvements will continue to drive our revenue and support strong financial performance moving forward.

Jeff, this is Tom again. If I could add just a little bit more. I think the key here is that we own our data. So the amount of data Mike could tell me how much we're accumulating every day on every customer interaction from prospect all the way to move out builds an enormous warehouse, if you will, facts to mine trends to look for responses that were missed and so it's not just winding the business model better. It's looking more around the corner, owning that data, what are better ways we can run the business to anticipate the customers' position, a market position and then ultimately, how we're pricing our product to those individual customers. So I think it's just the very early stages I think the focus that Mike and the entire team has on it. It's always amazing every month we sit and go through where we stand and how much facts we know about where we are and where we're going, help us run the business better, faster, more efficiently.

Great. Mike, I appreciate all the detail you gave across regions. But the question on the same-store revenue guidance, which assume some acceleration in the Sunbelt markets for a lot of the reasons you cited first half versus back half, but you do have deceleration assumed for the coastal markets, despite having a higher earnings. So I guess what's driving that assumed deceleration in the coastal regions this year? And could you actually see some upside given some of the positive dynamics being discussed on the West Coast in particular?

It's a great question, Austin. When we look at the West Coast, our blends and earnings are quite similar to what we saw last year, showing no significant deceleration in that regard. However, the difference lies in other income, particularly in areas like the Monterey Peninsula. We are currently facing rent control and cannot charge for reimbursements without sub-meters at those properties. This situation is likely to result in a $2 million to $3 million impact for us in 2025. Without this issue affecting the West Coast, we would expect to see about 50 basis points more in growth, making our costs align closely with those of 2024. Regarding the Sunbelt, the focus remains on other income growth; we saw nearly 14% growth in 2024, and we anticipate around 12% this year. Additionally, we have a strategy for Monterey Peninsula to install submeters to help recover a significant portion of that income, which is more likely to be addressed in 2026 and 2027.

Perfect. Sorry about that. So just a quick question. One of your peers is kind of increasingly doing more in terms of just kind of like townhouse, townhome type product. kind of looking a little bit more like FFR products. I'm just kind of curious how you guys think about that as an opportunity, especially given you already in kind of some of the key FFR markets.

This is Toomey. Yes, it's a product I'm quite familiar with and have done in times in the past. And if you go down to our Vitruvian development in Dallas, you'll find that we've put up 85 homes down there on the townhome product, it only fits where you don't have enough density opportunity, okay? And so you look at long-term hold periods and you think about a site and where you would get the most cash flow. Density is always something we're striving for why it just gives us a bigger capital footprint and opportunity to grow. So it fits, it's generally more of a suburban farther out fringe product. It can be a lot of good Phase II type of development activity. So we're familiar with it, when we find sites that fit that template certainly have the capability to execute. Leaning in, I think we look down the whole risk-reward grid of our capital deployment, and Joe's in charge of that now.

I appreciate you hanging in there. Two quick ones for me. First, a follow-up on development. I guess I'm curious how you guys are factoring in potentially higher input costs from potential tariffs, lumber labor into the high 5 yield targets you mentioned. And of the 2 or 3 projects that you were looking to start near term, how much of those costs are locked in?

Yes. We are experiencing a temporary decrease in costs at the beginning of 2024, and cost settlements have stabilized. In our underwriting, we have taken some inflationary pressures into account. We're currently in the bidding process to secure these costs. The project starts that may happen in the latter half of this year have estimates that are not yet finalized, so that remains uncertain. There are concerns regarding tariffs and their stability, particularly with lumber supplies from Canada. Other materials like mechanical components and glass could also be affected depending on their source. On the positive side, decreased start activity has resulted in a greater availability of labor, which may reduce wage pressures in various trades. Overall, we have prepared for the initial deal to ensure we can proceed effectively.

Do you have any update on the 1,000 investment attrition for the year? And for junction and notes, has there been any change in demand given the price?

Hi Mason, I believe we caught part of your question about the demand for the 1,000 Oaks project. If that's incorrect, please feel free to clarify. The 1,000 Oaks project has continued to experience very strong demand. Unfortunately, there are implications from the fires that we're facing. The project has increased from being around 90% leased and occupied a few weeks ago to the mid-90s now, and it continues to gain momentum. Overall, the project is performing well despite the challenging circumstances.

Once again, thank all of you for your time, interest and support of UDR. We look forward to seeing many of you at upcoming events. And with that, take care.