Good afternoon, welcome to UDR's fourth quarter 2018 earnings call. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Vice President Chris Van Ens. Thank you, Mr. Van Ens. You may begin.
Welcome to UDR's quarterly financial results conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the investor relations section of our website, ir.udr.com. In the supplement, we've 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. The 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 and follow-ups.
Management will be available after the call for your questions that did not get answered on the call. I will now turn the call over to UDR's Chairman and CEO, Tom Toomey.
Thank you, Chris, and welcome to UDR's fourth quarter 2018 conference call. On the call with me today are Jerry Davis, President and Chief Operating Officer, and Joe Fisher, Chief Financial Officer, who will discuss our results, as well as Senior Officer Harry G. Alcock, who will be available during the Q&A portion of the call. The five topics I will cover today include a short recap of 2018, our high-level 2019 macro outlook, UDR's 2019 strategy, capital deployment opportunities, and the senior executive promotions announced early in January. First, we again produced strong results across all aspects of our business during the quarter and for the full year. Like many REITs, our stock took a wild ride in 2018, but macroeconomic forces remain supportive of apartment fundamentals. Our best-in-class operations, diversified portfolio, and disciplined capital allocation allowed us to take advantage.
We produced sector-leading top-line growth, twice raised same-store and earnings guidance ranges, and finished the year at the top end of our FFO-adjusted per-share range. I would personally like to thank all of our associates for a great 2018. Second, from a high-level perspective, we expect 2019 to be relatively similar to 2018. That is solid economics, demographics, and fundamental backdrop accompanied by bouts of share price volatility throughout the year. UDR tends to perform well in this type of environment. In 2019, we again expect to be near the top of the group in same-store growth with better flow-through to the bottom line as our large developments move towards stabilization, and we take advantage of embedded opportunities like the option asset purchases completed subsequent to year-end. Should we encounter a different 2019 economic environment, I'm confident that UDR is set up well for success on a relative basis.
Third, we do not anticipate any meaningful changes to our overall strategy in 2019. In 2018, we set forth two key areas that would enhance UDR's cash flow growth in the years ahead, being the next iteration of our operating platform and capital allocation that will increasingly be influenced by predictive analytics. In both, we see the adoption of technology as a disruptive and driving factor. Historically, we have benefited from a number of technology-driven initiatives, and as a result, have fostered a culture that embraces these advances. This is an advantage we will continue to grow moving forward. Next, we have a wide variety of capital sources and uses available to us but will continue to be disciplined in our deployment. Internally sourced investment opportunities include fixed-price options on recently developed assets, redevelopment, densification of our communities, legacy land utilization, revenue-enhancing CapEx, and investing in our operating platform.
Externally sourced opportunities include development, DCP, and acquisition. Year-to-date 2019, we have invested in a variety of these opportunities, showcasing the flexibility of our capital allocation strategy as potential uses continue to compete for capital based on risk-adjusted returns and expected accretions. Lastly, developing talent remains a top priority for myself and the rest of the senior leadership team. The senior executive promotions we announced in January are part of a process that has been ongoing for a number of years. Jerry, Andrew, Mike, Matt, Bob, and Dave are all deserving of the recognition they have earned, as are all the other UDR associates that have moved up in the ranks.
On a side note, Jerry's promotion to President is not a signal that he is stepping back from operations, but rather that he is handing more of the day-to-day task over to Mike Lacy as he focuses on implementing the next iteration of our operating platform and ensuring strong execution. I have worked with Jerry for 18 years, and Mike has worked with Jerry for 12 of those 18. I look forward to many more. With that, I'd like to again thank all of our associates for the hard work put in to making 2018 another great year. We're excited to carry this success into 2019. I'll turn the call over now to Jerry.
Thanks, Tom, and good afternoon, everyone. We're pleased to announce another quarter and full year of strong operating results. Fourth quarter same-store revenue and NOI growth rates were 3.7% and 3.4%, and full year 2018 growth rates were 3.5% and 3.4% respectively. For the quarter, our sector leading results continued to be driven by, first, a widening blended lease rate spread that averaged 110 basis points above last year's comparable period, robust occupancy averaging 96.8%, year-over-year annualized turnover that declined by 130 basis points, other income growth of nearly 12%, year-over-year controllable expense growth that has declined by 1.2%, and a continuation of positive trends in move-outs to home purchase and rent increase, both of which remain low at 11.6% and 5.4% respectively. Moving on, the primary 2019 macroeconomic assumptions that underpin our outlook are national job growth of approximately 170,000 per month with wage growth above 3%.
This compares to 2018 job and wage growth of 220,000 per month and 2.8% respectively. This is set against a relatively flat year-over-year delivery forecast after potential slippage is factored in. Last, B quality and suburban properties are expected to generally outperform A quality and urban assets. 2019 UDR specific assumptions, which are driven by the macro forecast we utilize and by community-specific ground-up assumptions, are as follows. Our operating earn-in was approximately 40 basis points higher versus last year. Overall pricing power in the form of blended lease rate growth will be better than 2018. Occupancy is expected to remain in the high 96% range. Other income should continue to grow at high single digits, but not as robustly as in 2018. Controllable expense growth is forecast to remain in check due to ongoing efficiency initiatives and the preliminary implementation of operating platform improvements.
Non-controllable expenses such as real estate taxes will continue to pressure our bottom line due to 421-a burn off in New York and higher valuations in assorted markets. Same-store community additions for the full year will not materially impact our revenue or NOI growth forecast. Additions to our same-store pool are available on attachment 7B of our supplement. Please note 10 Hanover, located in downtown Manhattan, and Garrison Square, located in Boston, are being positioned for redevelopment later in 2019. Their eventual exclusion from the mature pool is contemplated in our full-year same-store revenue and NOI growth guidance ranges, positively impacting them by 5 and 25 basis points respectively. Taken together, full-year 2019 same-store revenue growth is forecasted 3%-4%, expense growth at 2.75%-3.75%, and NOI growth at 3.25%-4.25%, which compare favorably versus the peer group and to 2018.
As Tom indicated in his remarks, I spent a great deal of my time in 2018 and will be spending even more of my time in 2019 implementing the next iteration of our operating platform, ensuring proper execution in the years ahead. I'm proud of what our operations teams have accomplished over the past 10 years with regard to the successes of our top-line and expense growth initiatives, both of which expanded our margin significantly. Moving forward, we are working diligently to become even more efficient by centralizing and outsourcing repetitive non-customer facing tasks at the site level, implementing an enhanced suite of resident self-service options available on smart devices, and utilizing the internal data we track to better price our apartments and operate our communities. Why are we embarking on the next phase of our platform now? The answer is threefold.
First, our customers are demanding that we conduct an increasing amount of business with them in a more simplified, technologically driven manner, similar to how they conduct business in other aspects of their life. To satisfy these demands, UDR must move more of our day-to-day interaction with residents online, similar to what they did with legacy initiatives such as online rent payment, service request, and leasing, all of which have higher than 80% penetration rates. Akin to companies that have successfully adopted transformational technologies in other industries, UDR will continue to invest and pivot as necessary to best serve our residents' needs. Second, the technologies we will deploy have come a long way and are generally ready for prime time.
Over the coming years, these solutions will allow our associates to perform their jobs more efficiently by focusing more of their time on value add pursuits such as improved customer service. Third, we have a culture of innovation and success wherein we are focused on continued improvement. In 2019, we intend to invest approximately $20 million on smart home tech that will start us down this path. These installations will address about one-half of our opportunity set, with another $10 million in spend expected to take place in 2020 to round out the majority of our remaining communities. Smart home tech includes smart locks controlled by a mobile device, smart thermostats, water leak detecting sensors, and smart light switches. To date, we have completed 1,800 home installations with rent premiums between $20 and $30, depending on the market. Although there are clearly significant benefits to our controllable expenses as well.
An additional $30 million investment in other technologies for the overall operating platform will also occur over the next three years. Some of this will be funded by successful investments in third-party technology firms, such as the one we highlighted on the face of our press release. Ultimately, we envision that these investments will meaningfully expand our margins, make our associates more efficient, make UDR a better place to work, and improve our customers' all-around experience through an enhanced resident app, self-guided touring, improved pricing, more efficient workflow, and greater resident satisfaction. To close out this subject, we have consistently improved our platform through the adoption of new technologies over the past 10 years, all of which has benefited our customer, the company, and our shareholders. What I outlined previously in my remarks represents the next step in our evolution.
Our company culture has consistently been one that promotes and rewards innovation, which gives us confidence in our ability to execute while not taking our eye off of core operations. Moving on, a quick overview of market-level growth expectations for 2019. Orlando, Tampa, the Monterey Peninsula, Boston, Seattle, and San Francisco are forecast to grow same-store revenue at a rate above the high end of our 3%-4% portfolio growth range. We expect New York and Baltimore to come in below the low end. All other markets are forecast to grow top lines within the collars of our portfolio range. Last, our development pipeline continues to generate strong lease rates and velocities. While the current wave of projects was 85% leased on average at year-end, and therefore close to reaching physical stabilization, economic stabilization is still a couple of years away.
We are quite pleased with how our lease-ups performed during 2018. With 345 Harrison, our 585-home, $363 million project in Boston. Vitruvian West, our 383-home, $59 million project in Addison, Texas. Vision on Wilshire, our 150-home, $127 million project in Los Angeles, all exceeding expectations. In closing, I appreciate the opportunity that Tom and the board have provided me, and I would like to thank all of our associates in the field and at corporate for producing another strong year. With that, I'll turn it over to Joe.
Thanks, Jerry. The topics I will cover today include our fourth quarter results and forward guidance, a transactions update, and a capital markets and balance sheet update. Our fourth quarter earnings results came in at the high ends of our previously provided guidance ranges. FFO as adjusted and AFFO per share were $0.50 and $0.46. Fourth quarter FFOA grew 5% year-over-year, driven by strong same-store and lease-up performance and accretive capital deployment. Next, I will provide several high-level comments on our 2019 guidance, the details of which can be found on attachment 15 of our supplement. Full year 2019 FFOA per share guidance is $2.03 to $2.07, and AFFO is $1.87 to $1.91. Primary drivers of the $0.09 of growth between our 2018 FFOA of $1.96 and our 2019 $2.05 midpoint include a positive impact of approximately $0.08 from same store, stabilized JVs, and commercial operations.
A positive impact of approximately $0.05 from development, DCP, and other transactional activity. A negative impact of approximately $0.01 each from higher G&A and the timing drag associated with the recent equity issuance. A negative impact of approximately $0.02 from higher incremental financing costs, inclusive of higher LIBOR expectations. Moving on, as Jerry indicated in his remarks, our full year 2019 same-store growth forecast is 3%-4% for revenue, 2.75%-3.75% for expenses, and 3.25%-4.25% for NOI, with forecast occupancy of 96.8%-97.0%. For the first quarter of 2019, our guidance ranges are $0.48 to $0.50 for FFOA, and $0.46 to $0.48 for AFFO. Next, transactions. During the quarter, we sold Circle Towers, a 46-year-old, 604-home community located in the Fairfax County submarket of Washington, D.C., for $160 million. Subsequent to quarter end, we completed numerous transactions.
First, we exercised purchase options on Parallel, a 386-home community located in the Platinum Triangle sub-market of Anaheim, California, and CityLine II, a 155-home community located in suburban Seattle, for a total cash outlay of $132 million to buy out our JV partner's equity interest and pay off construction debt. Our total investment in the communities is $184 million. Both were acquired at a discount to market value and at a weighted average FFO cap rate of 5.3% on our blended investment. Second, we entered into a contract to purchase Leonard Pointe, a 188-home community located in the Williamsburg neighborhood of Brooklyn, New York for $132 million at a high fours FFO cap rate.
The community is four years old, has operational upside, is highly walkable, has easy access to Manhattan via the L line and Long Island City via the G line, and increases our exposure to a target market. The transaction is scheduled to close in the first quarter, subject to customary closing conditions. Last, we acquired 500 Penn Street, a development site in the Union Market District of Washington, D.C. for $27 million. We have been working on this deal for nearly three years and are excited about the vibrant, large-scale redevelopment underway around the site. We closed on 1590 Grove Street, the development site located in the Sloan's Lake sub-market of Denver, which we originally put under contract during the first quarter of 2018 for $14 million. Regarding development, our pipeline totaled $779 million at year-end, was 85% leased and 99% funded.
We continue to assess new development opportunities, similar to the past several years, remain disciplined in our underwriting. Over the next several years, we anticipate that our pipeline will stabilize at a level below where we have been through much of this cycle, likely in the $400 million-$600 million range, which is in keeping with our three-year liquidity profile targets. On the DCP front, our investment, inclusive of accrued preferred return, stands at $199 million today. No additional deals were signed during the fourth quarter, we continue to see a wide variety of opportunities with new and legacy partners. Our 2019 uses guidance of $20 million-$30 million only contemplates funding projects already in our pipeline. We have approximately $100 million-$150 million of additional capacity that we can choose to deploy.
As a reminder, we have one more fixed-priced option in the West Coast development JV that we'll make a buy-sell decision on it when our purchase window opens in 2020. On the remainder of the in-place pipeline, we have backend participation and a seat at the table upon sale. As Jerry indicated in his remarks, we are positioning 10 Hanover, located in downtown Manhattan, and Garrison Square, located in Boston, for redevelopment. We anticipate these projects will both start later in 2019. The total 2019 guidance spend of $25 million-$35 million also includes some smaller scale unit additions at other stabilized properties. Big picture, we have a variety of capital sources and uses, with competition taking place within each bucket. Today, we remain focused on opportunities in redevelopment, development, DCP, and acquisitions.
Moving forward, we will remain flexible with our deployment and will continue to pivot to take advantage of the best available risk-adjusted return as long as opportunities meet our hurdles and can be accretively funded. Next, capital markets and balance sheet. During the quarter, we issued 7.15 million common shares for net proceeds of approximately $300 million. The deal was well executed, priced at a premium to consensus NAV on a net basis, was 25% above the price at which we executed our buyback earlier in 2018, provided us optionality with regard to asset sales later in the year should we find incremental investment opportunities. All of the proceeds are earmarked for deployment over the near term. During the quarter, we issued $300 million of 10-year unsecured debt at an effective coupon of 4.27% after hedging.
Proceeds were used to prepay $196 million of 5.28% secured debt originally scheduled to mature in October and December of 2019 and for general corporate purposes. We have a minimal amount of debt coming due in 2019, with cash flow in excess of dividends and cash on hand from our recent equity issuance expected to fund nearly 60% of our uses guidance. At quarter end, our liquidity as measured by cash and credit facility capacity, net of the commercial paper balance, was $1.3 billion. Our consolidated financial leverage was 31% on the undepreciated book value, 23% on enterprise value, and 28% inclusive of joint ventures. Our consolidated net debt to EBITDAre was 5.0 times, and inclusive of joint ventures was 5.6 times.
We remain comfortable with our credit metrics and don't plan to actively lever up or down from our average 2018 levels. Finally, in conjunction with this release, the board approved an annualized dividend of $1.37 per share for 2019, a 6% increase over 2018. The yield as of year-end was approximately 3.5%. I will open up for Q&A. Operator?
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'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 the star keys. One moment please while we pull for questions. Our first question comes from the line of Nicholas Joseph with Citigroup. Please proceed with your question.
Thanks. What's the guidance for ancillary revenue growth in 2019 and what was it in 2018? How much will it contribute to same-store growth this year versus last year?
Hey, Nick, this is Jerry. Last year, we came into the year expecting other income to contribute or to grow at high single digits, and it came in just under 12% at 11.5%. We go into this year, once again, we think it's going to be high single digits, with the hope, but not the expectation that it could go higher. It's all based on increased penetration in some markets. When you look at the contribution it made to total revenue last year, it was in that 80-100 basis point range. This year it's expected to be probably in the 50-60 basis points of revenue growth.
Thank you. Our next question comes from the line of Richard Hill with Morgan Stanley. Please proceed with your question.
Hey, good morning, guys. Maybe just following up on Nick's comment there. It looks like, at least for the companies that we cover, you have peer-leading same-store revenue growth and FFO growth. In the past, you've had pretty attractive same-store revenue growth, but the FFO growth has been more in line. I'm curious, what's driving that FFO growth in 2019? Maybe you could break down the other income. Is it development? Is it sort of your lending program? How should we think about that?
Yep. Hey, Rich. It's Joe. Couple things in terms of what's driving it this year. Obviously, the core growth as well as the joint venture and commercial is contributing to that year-over-year growth number. As we came through last year, remember we had an $800 million pipeline on the development side that was really going just into the lease-up phase. You kind of came off of cap interest, took on full expense load, but we're working up on the occupancy and revenue side. That was about a penny drag last year to our run rate FFO numbers. This year, we think it's probably about two pennies accretive, so you kind of had a three-penny swing, if you will, year-over-year.
In addition, if you go to the DCP pipeline, you look at what Harry and team have been able to do on that front in terms of continuing to deploy capital. That's been accretive for us as well. On the financing front, while rates continue to tick higher, we've tried to get out ahead of some of the prepayment and refi activity and lock in lower rates on that front, which has helped as well. Overall, you kind of have core driving 8 pennies of it, transaction activity driving around 5 pennies. You have interest coming off 2 pennies, as well as G&A and the equity raise being about 1 penny each.
Great. Very helpful color. Thanks, Joe.
Yep.
Thank you. Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.
Hey, guys. Just touching on the Brooklyn acquisition. We've seen many of your peers reduce exposure to New York City recently, so you're clearly taking a contrarian view here and adding exposure. I guess I'm just curious, what gives you the confidence in the market, I guess, both near term and longer term, given some of the supply challenges we've seen? Also curious, when you underwrote the transaction, if you underwrote it with the L train being fully shut down, I guess, over the near term.
Gotcha. Hey, Austin, this is Joe. I'll probably start it off, and then Harry might be able to speak to some of the specific attributes on the asset, sub-market returns. Overall with New York, you're right. It is a market. If you look at both Lent and our 10 Hanover redevelopment, we are looking to get more dollars put to work in that market. While it has lagged of late from a rent standpoint, given the supply picture, we are starting to see that come off. New York will be probably a little bit higher next year in terms of supply. This is not a one-year trade for us. We're thinking about the next five to 10 years.
While supply has dampened that rent growth, when you look at the underlying economic kind of drivers of that market, meaning job growth, income growth, population growth, and as well as the diversification of the employment base, clearly getting more technology-focused and diversifying away from just kind of the buyer type of jobs. We think we're set up to see kind of a mean reversion of the rent growth over the next five to 10 years. That's what got us positive on that front. I'll kick it over to Harry, and he can probably talk a little deal specifics.
Hey, Austin. Sure. This is Harry. The property, just first of all, we think is very well located in the North Williamsburg area of Brooklyn, a block from McCarren Park. It's really in an established residential neighborhood, even though the property's only three or four years old, away from the glut of new supply in downtown Brooklyn and the Williamsburg waterfront. It really is very difficult to get density in this neighborhood. The property's been fully occupied for two years. Has a 25-year tax abatement, fully abated until 2036. You mentioned the L train. When we contracted, put this property under agreement, the L train was still s upposed to be taken offline entirely during the due diligence process. You saw the news that the L train will still continue to run.
Our initial underwriting contemplated the L train stopped entirely. Today, we're aware of the circumstances, which should be positive.
Great. Thanks, guys.
Thank you. Our next question comes from the line of Trent Trujillo with Scotiabank. Please proceed with your question.
Hi, good morning, and congrats, Jerry, and all the other team members on recent promotions. Just thinking about other markets. You also recently commented on the attractiveness of Philadelphia and how you're looking to expand your presence there. Since we're coming off the NMHC conference, I'm curious if you've surfaced any opportunities to act on this.
Yeah. Hey, Trent, it's Joe. We did do the DCP deal that we talked about last year, 1300 Fairmount, for around $52 million or so. It is a market we want to continue to gain more exposure to for some of the reasons we've talked about in the past. Coming out of NMHC, there's always plenty of deal flow coming out of that. We have been looking, not just on the DCP side, but we're looking at development opportunities there to try to rebuild that pipeline. We're looking at acquisition opportunities as well.
To the extent that we can find something that we think is going to be accretive, not just near-term, but to longer-term growth, and then also have the ability to lay on the operational platform that Jerry spoke to in his opening remarks, and also put in some more initiative penetration, I think there's an opportunity for the platform to drive outsized revenue growth there as well. We are looking. I think the good thing about the equity offering that we did in December, it created a lot of optionality for us around transactions so that we can consider instead of just using dispositions or removing dispositions from the plan, we now have the opportunity to try to figure out how to drive some additional FFO growth for the platform going forward.
Okay, great. Just a quick follow-up. In the prepared comments, I think you mentioned that you expected B quality assets to outperform A in 2019. Can you maybe talk about the magnitude of that performance gap, how it compares to 2018, and if you expect that gap to trend in a particular way during the year?
This is Jerry. In 2018, I think across our portfolio, it was probably 75 to 100 basis points of outperformance. I think as you go into this next year, we would expect it to be roughly that same magnitude, maybe a bit tighter, but not materially different.
Thank you very much. Appreciate it.
Thank you. Our next question comes from the line of Rob Stevenson with Janney Montgomery Scott. Please proceed with your question.
Good afternoon, guys. Jerry, when you were putting together your same-store revenue range for 2019, which markets did you and your team think had the widest band of likely outcomes for 2019? If one market falls short of your 2019 expectations when we're speaking a year from now, which market do you think that's likely to be?
Probably the ones with the largest ranges are the ones that have the heaviest amounts of supply. You know what we're really looking at that determines the ranges is job growth in those markets. Three that really jump out are Seattle, New York, and San Francisco. We expect Seattle to be a good-performing market this next year, but a lot of it is contingent upon a continuation of job growth. The same is true in San Francisco. New York, while it's going to be one of our lower-performing markets, we still expect it to be almost 100 basis points improved revenue growth from last year. We've been encouraged recently. Joe was going through some of the attributes that we saw in the Brooklyn deal.
As we look at more recent rent growth there, as you see in our supplement on attachment HG, new lease rate growth in the fourth quarter was 1.5%. That compares to a company average of 1%. Actually, in the month of January, new lease rate growth was 1.3%. We're encouraged by New York today, but we are cognizant that depending on job growth, it could change. The fourth market that you have significant amounts of new supply, not much is in our backyard, is L.A. L.A., I would say, just always has a little bit of risk for us on the same store side because three of our four same-store assets are located in Marina del Rey. When you have that kind of a concentration, if the development that is coming at us goes a little crazy on lease-up concessions, it can affect us.
I guess there was one I look at that could surprise to the downside, this is probably just looking more at conventional opinion. Seattle. We feel like our Seattle portfolio, while it's heavily located in Bellevue, West Bellevue's not going to have that much new supply. If you do feel concessionary problems come from both Redmond, where supply is going to be heavy, or downtown, it could affect us.
Okay. Thanks, guys.
Sure.
Thank you. Our next question comes from the line of Rich Hightower with Evercore ISI. Please proceed with your question.
Hey, guys. How are you?
Hey, Rich.
Good. I'm going to do a quick question here on the smart home technology investment you described in the prepared remarks. I'm just curious how you guys think about that. Given the plethora of options probably available to a company like UDR, and how you pick among vendors and think about potential obsolescence over the next several years as new technology comes down the pike. Also, how do you get to that $20-$30 rent premium you described? How do you measure that exactly?
Yeah, Rich, it's Jerry. I'd tell you, we did look at a lot of vendors, and we participated with one that we have a lot of confidence in. The company has success with other installations historically, most predominantly in the single-family home industry. When you look at the return, we measured the return, and it's about a 12-13 IRR based on about a six-and-a-half year life on this investment. We think there's also, as I said in my remarks, benefits on the expense side. One of the key features of this is leak detectors, and as you know, in high-rises as well as garden communities, water damage can be very expensive, so catching it early drives down insurance costs as well as R&M.
We think by having these electronic locks, it saves our maintenance teams time in responding to service requests, as well as just having to change out locks. It also cuts down on overtime because we don't have to come out and do lockouts for residents. There's quite a bit of benefit on the expense side, too. When you look at the $20-$30 premium, we're going to add that to the rent, so we will be able to measure what our spread in rents was before and after installation compared to the market to ensure that we're getting that benefit. I can tell you, as I said in my opening remarks, we've installed almost 2,000 of these. The response from the residents has been very positive.
I think a lot of them already had things like Amazon Echoes in their apartments that they're tying into the system to help make it work. I think they see the convenience factors, especially on the locks, to be able to open them remotely from their mobile device when they have friends, dog sitters, people like that coming to their houses. I think for our single parents that, or parents in general, that have school-aged kids that get home from school, you get a notification when the door opens, so it gives you that kind of calmness that your child has returned home. Overall, we think it's a big benefit for the resident. We think there's a significant benefit to us. We realize that technology does change, but we think this technology is cutting edge and should last at least a six-and-a-half years before we have to reinvest.
Okay. No, that's helpful color. Let me ask another question. UDR, I think is, at least among your public peers, as far as we can tell, has been, I don't know if you want to call it at the forefront, but fairly active and rigorous in pursuit of the data analytics side and how you select markets for investment in the future. New York is a market that you guys have described as maybe being a contrarian play. Philly, I think, was one that screened well according to your methodology as well. Are there other markets out there, and I don't want you to give away the playbook, but other markets that sort of screen well from a contrarian perspective versus what the consensus view on that given market might be today and where you guys might differ?
Yep. Hey, Rich. There definitely are other markets that we are actively looking in and trying to deploy capital into. I think as you look forward to our actions over the next 12, 24 months, you'll probably see the fruits of those labors. I think you'll see where we're trying to go. From a sourcing standpoint, yeah, there's markets that may not screen as well for us, but keep in mind, there's always asset-specific, sub-market specific, tax specific, as well as CapEx reasons that you may want to sell an asset. I'd say our disposition strategy is probably a little bit less focused on the port strat work. We'll still use it as a factor, but there are a lot of other factors that come into it, whereas the deployment of focusing personnel resources and capital resources is a lot more focused across the board.
Okay. Thanks, Joe.
Thank you. Our next question comes from the line of Jeff Spector with Bank of America. Please proceed with your question.
Thank you. Good afternoon. Just maybe if we could start with the macro. I heard Tom say that the macro remains supportive, and we're getting lots of incoming calls, questions on just the macro. Again, just to confirm from what you're seeing, whether it's web traffic, right now, I guess all indicators are showing that in your markets, the macro environment remains stable good?
Yeah. This is Jerry. I would tell you, when you look at total income growth for our markets, it's screening higher than it is for the country in general, at over 6% total income. We expect job growth. When you look at how we built up some of our budget and plan expectations, we do see job creation coming down somewhat to probably about 170,000 jobs per month. We do see an increase in wage growth in our markets. You've got that. On the supply side, I don't think we're seeing a whole lot different than our peer set. I think overall, we see a slight increase in supply next year, and it deviates market by market.
Hey, Jeff, this is Joe. Maybe just a couple other things as it relates to our capital allocation thoughts, too, on that front. While we do see positive macroeconomic backdrop, you have seen a lot of activity out of us in the first quarter, as well as the intent to rebuild that pipeline on the development side, roughly half of where it's been most of this cycle. I don't want you to take away from that we are overly bullish or risk-on from a cycle standpoint, or that we have adjusted our underwriting or discipline around that by any sense. It's really just a byproduct of a couple things. Those being, one, timing, in that you've seen the two options from Wolfe that started back in 2015 coming to fruition. The Union Market land that started three years ago. Denver that started over a year ago.
Some of this activity is just simply a byproduct of timing of a lot of these deals coming to a head at once, as well as that optionality that we talked about that the equity offering gave us to kind of go out there and think about where we can deploy capital to increase the growth rate. Don't take our comments on macro and the recent activity to think that we are overly bullish on where we're going and that we're switching to a risk-on posture.
You know, Jeff.
Yeah, sorry.
That being said, we've got January in the books. When you look at new lease rate growth in January, it was at 0.9%, which is comparable to what it was in the fourth quarter. It's about 120 basis points on the new lease side, higher than we were last year. You've got that on top of 96.8% physical occupancy. We're off to a good start this year.
Great. Thanks. All very helpful comments. Then just one other question on expenses. I know you said real estate taxes, of course, will continue to pressure overall expenses, the rest remain in check. Can you confirm the predictive analytics that you're referring to? Are you using that for the expense controls? You seem to be doing a better job than your peers on that front.
No, we're really not utilizing the predictive analytics. I think on the expense side, what you've seen is us really get a start on this operating platform that we discussed in the prepared remarks. I think when you look at how we've done in the fourth quarter, our controllable expenses, which are everything except real estate taxes and insurance, were down 1.4%. You're going to see an increase in repairs and maintenance, a pretty good decrease in personnel. That's really a function of us outsourcing more pieces of our business to more efficiently drive down the total cost structure. I think a lot of what we've done so far is related to outsourcing and centralization of certain functions to become more efficient. I think we've improved some of the analytics we use on the marketing side.
I think we've, on the utility side, done a very good job of putting in more energy-efficient lighting and other tools. I think you're going to see those continue. While we're still expecting real estate pressures next year, it'll come down somewhat from what it was this year. Our expectation is those controllable expenses stay in check, probably close to flat, as we look out into 2019. I think as we continually drive down our margin through this new operating platform, it's going to help our existing portfolio, more importantly, it's going to give us a platform so that when we're looking to make other investments in the future, whether it's acquisitions or developments, you're going to see better flow through on those and more value creation.
Great. Thank you.
Sure.
Okay.
Thank you. Our next question comes from the line of John Guinee with Stifel. Please proceed with your question.
Great. Thank you, a wonderful job. Just trying to drill down a little bit more on the CapEx spend. If I look at attachment 14, you're at about $2,300 a unit for capitalized expenditures on consolidated homes. If you add tech spend to that, or maybe you have already, what's your tech spend per unit for the next few years? If you look at redevelopment, a good run rate for redevelopment, which isn't adding to your unit count, but is just a major overhaul of a project, how much whole dollars should we expect to spend or you expect to spend on technology as well as redevelopment?
Hey, John, this is Joe. Just on the recurring and rev enhancing, that $2,300, that does not take into account the spends for the new platform. The spend that Jerry's referred to on that front for the technology spend will be separately categorized from this, and we'll provide that guidance. You can see back on attachment 15, where we provide overall guidance for the platform spend of $25 million-$35 million this year. That's for both the technology spend as well as the smart home spend that he referred to. That's going to be separate from this. What we're trying to show you on attachment 14 is really the recurring CapEx required for the business to drive that NOI. That's what the recurring number should be.
On redevelopment, you've got $25 million-$35 million. How many units is that? Are you adding any units when you redevelop, spend $25 million-$35 million on redeveloping existing properties?
There's a couple different buckets in there, Harry or Jerry can probably go into some of the details, but the $25-$35, it's not a set level that we try to get to each and every year. It's opportunity-dependent as those opportunities come along. In this case, we talked about Hanover as well as Garrison Square. That is embedded in this, but that'll be a multi-year spend, so it'll drag out over a couple of years. We'll provide more disclosure going forward as those deals start about what the total expectations of spend are, the completion dates, et cetera. In addition to those larger type of products or projects, you're going to see densification opportunities, unit additions, creative things that we're trying to do to take advantage of underutilized space. Taking underutilized amenities or garage space and trying to add units into the project.
That spend will be embedded in here as well.
Great. Thank you very much.
Yep.
Thank you. Our next question comes from the line of John Pawlowski with Green Street Advisors. Please proceed with your question.
Thanks. Jerry, thanks for the comments on 10 Hanover and Garrison impact to same store. Could you provide the same store revenue and NOI impact for all changes, net additions, and subtractions to same store 2019?
That's pretty much what it is. When you really looked at the other additions, and there weren't many, it really didn't have any effect on it.
Okay. On property taxes outside of California and New York, where there's pretty good visibility, what regions are you expecting the most pressure in property tax growth rates in 2019 versus 2018?
It's probably the same ones that we're going to see the pressure. That would be Florida, Texas, Seattle, would be the heaviest pressure points.
All right. Last one from me. Joe, I understand you're comfortable with the credit metrics. If GSE reform becomes more real, at any point, would you try to get to an improved credit rating to try to get your unsecured costs down?
Yep. Hey, John. I would honestly say that the GSE reform aspect and our credit rating desire to move up in credit rating are probably independent of each other, as we've traditionally been an unsecured borrower and had very competitive cost of capital on that front as a BBB+. We've gone through that whole analysis of if we tried to upgrade on rating, what we would have to give up in terms of a de-leveraging and what the dilution would be to that. To date, we have not been able to make sense of upgrading and trying to offset that with multiple, as we don't think our multiple has been impaired due to our credit profile.
I do think if the GSEs do tend to reform and/or go away, the important considerations are when you look at us as a public company, like you said, we do have a lot of different sources of capital. In addition, when you look at our asset base, which is a higher quality asset base, which is typically not as levered in the private market, we are probably more insulated as a public company relative to the private market from any impact of the GSEs.
Okay. Thank you.
Yep.
Thank you. Our next question comes from the line of Tayo Okusanya with Jefferies. Please proceed with your question.
Hi. Yes, good afternoon. Most of my questions have been answered, but I just had one quick follow-up. A comment that you made earlier on about the developments being close to physical stabilization, but still several years before they hit economic stabilization. I was wondering, could you talk a little bit about that? Because I would've thought things like what's it called? What am I thinking about? Discounts and things like that, they kind of come off fairly quickly. I'm just surprised you're talking about such a big time difference between physical stabilization and economic stabilization.
Well, this is Jerry. Joe may want to jump in or Harry. When you think about physical stabilization, you complete the project, obviously, and then you start to lease up throughout. Frequently, that first year of lease-up, you're offering anywhere from a month to maybe a month and a half of concession. You also have extensive marketing costs during that timeframe. That's physically stable but not economically stable. As you get to that next year, the next turn of leases, typically the concessions go away, or for the most part go away, and the marketing spend comes down dramatically. That's when you start getting more of that full stabilized yield.
Got you. Okay. That's fair enough. Thank you.
Thanks, Tayo.
Thank you. Our next question comes from the line of Alexander Goldfarb with Sandler O'Neill. Please proceed with your question.
Hey, good morning out there. Just two questions. First, on the JV same-store pool, the KFC and the Hanover, or I guess MetLife. The same-store NOI was negative last year. I'm just curious, I know a few years ago you spoke about the rent levels of those properties being high-end, maybe it was a problem pushing rents. Can you just talk about the performance of those assets, and do you think that they will start to match your overall same-store trends, or you think that there's just something specific about where they are, where they're positioned in the market, that they will continue to underperform?
I think in 2019, our expectation is revenue is probably going to be about 100 basis points lower than what our same-store pool would be, so call it 2%-3%. That's predominantly because they're in urban areas with high A+ products, so they're competing more than our average portfolio against new supply. The expense growth is going to be more elevated too, more in the 4%-5% range, predominantly due to real estate tax issues that are affecting that. You should have this next year positive NOI, somewhere in the 1%-2% range. They will not do as well as our same stores.
Are they, Jerry, are you thinking about keeping those longer term or those are future assets to sell?
I'll start. These guys can jump in. I think this is just a temporary issue as we go through supply absorption. We've been going through it for the last year or two, we like these assets. We like the locations and the product type. It's just the time in the cycle where new supply has come into those more urban sub-markets, it's not making us want to flee those assets.
Okay. On the second question, Wall Street Journal article B7 today highlighted it, a number of municipality states contemplating different rent measures, including here in New York, that looks like it could target all apartments, not just the rent stabilized. What are your thoughts on some of these proposals, especially here in New York, with these proposals, are they affecting the way that you think about underwriting the markets? In your view, this is all normal course and as you've operated in markets over time, there's always this stuff and it's just something that is part of the underwriting mix or something shifting this time as you guys observe?
Hey, Alex, it's Joe. I would say first off, from a national basis, and it applies to New York as well, when we think about the affordability issues that exist out there, we continue to not believe that further regulations or compression on rents or caps on rents is probably an appropriate path forward to try to get new supply and new affordability out there. Hopefully we get to a point where we can all work kind of collectively as constituents and get to a better place. Given our desire to be in New York, that's independent of the rent control issue or rent stabilization issue that's out there today.
We have spent a lot more time thinking about this, going through and looking at the rhetoric that's out there, some of the commentary, as well as looking back at past attempts at regulation to understand where this could potentially go going forward. I do agree that we've seen a couple comments out there of market-wide rent stabilization talk, mainly from Julia Salazar, but I think most of the other rhetoric out there is really targeted to rent-stabilized piece. When we look at that, when you kind of look at New York overall, it's important to keep in mind a couple of facts, which are 50% of the market is market-based units, where the other 50% is effectively rent-stabilized and a small portion that's rent control. For our portfolio, pro forma for the Leonard acquisition will be about 80% market rate and 20% rent-stabilized.
I do think to the extent that anything happens on the rent-stabilized side, it will stand to benefit the market rate. We should see better rent growth, better forward rent growth valuations, just given supply will probably back off a little bit. The other thing for the rent-stabilized piece, whether something happens there with better oversight of legal rents, CapEx, rent stabilized or preferential rents, you likely do still have an economic return and probably a lower volatility return. It's something we're focused on, something we're thinking about. We factored it into a downside underwriting for Leonard to try to think about what could be a worst-case scenario if we went very draconian, and we still thought given the probability of that happening, made a lot of sense moving forward with that deal.
Okay. Thank you, Joe. Helpful.
Thank you. Our next question comes from the line of Hardik Goel with Zelman & Associates. Please proceed with your question.
Hey, guys. Thanks for taking my question. I actually just wanted to ask you about the progress you've made on the expense side and what we can expect in the future. As you look across the different lines, Jerry, you talked a little bit about how the platform investments over time will help with the cost structure as well. Do you see that more on the repair and maintenance side or the personnel side? Are you able to be more efficient with the number of employees per building or things like that? Just some more color on those items.
Yeah, it's exactly what you said. I think you're going to see the blend between R&M and personnel. I think we're going to be able to continually run it either flat to slightly negative, just like we did this year, as we create more efficiency, both on the cost structure as well as the workflow. I would guess, as you look forward to next year, you're going to see R&M probably inch up a little bit higher, but you're going to see personnel costs come down, even though you're going to have wage inflation across our markets of 3-plus expense. Our expectation is on natural attrition, we'll look for opportunities to be more efficient and outsource or centralize. I think you're going to see the personnel come in probably lower than most of our competitors.
Also on the utilities line, do you think there's potential, especially with buildings becoming more amenitized as we go through, at least on the newer product, there's potential for these sensors and other technology investments to kind of reduce those costs as you manage utilities for demonetize or common spaces better?
Absolutely. I think when you look at common area electric or gas, and the temperatures that are in hallways or other common areas, we definitely have room for improvement there within our company. I think when you look at that, as well as, again, LED light fixtures, we're looking at solar. I'm not sure if we'll move forward with that. We're looking at all kinds of opportunities to reduce any of the cost structure in the business that doesn't impact our residents.
Got it. Thanks so much. That's very helpful.
Sure.
Thank you. Our next question comes from the line of Haendel St. Juste with Mizuho. Please proceed with your question.
Hey there. I'm sorry if I missed this, did you mention specifically what the real estate tax growth outlook embedded in your 2019 same store expense range is? I guess as part of that, how much of an assumption is embedded specifically from the 421-a tax abatement pressures in your New York portfolio? How long, we're talking how many years of a headwind, should we expect the tax abatements to be?
Hey, Haendel. For real estate tax next year, we think it's probably going to come in somewhere in the 7%-8% range. If you look at what's really driving that, Jerry mentioned a couple of the markets already, but specific to 421-a, and I'll expand that to redevelopment impact too from View 34. 421-a, we just have 95 Wall in the same store pool going forward next year. That's about a $700,000 impact on real estate taxes, which with over $100 million are kind of in that 70 basis point type of range for impact. In addition, when you look at View 34, the big redevelopment that was completed several years back, the impact of that is flowing through into the valuations and therefore the real estate tax on a five-year average basis.
That one's cost us another, call it 150 or so basis points on real estate taxes as well. If you're kind of at 7.5 midpoint, our true unadjusted number is probably more in that kind of 450, 500 basis point growth range.
Okay, appreciate that. It sounds like we're at the front end of the tax abatement headwind curve. Approximately how long should we expect this to be an headwind, approximately?
Yeah. Across the platform, we really only have two large 421 projects. That's 95 Wall and then 10 Hanover. As we've talked about in the past, I think last year it was about $1.3 million. The collective impact this year will be about $1.8 million, and then we actually peak out in 2020, just over $2 million. We're actually coming up on the end of that 421 headwind, and then it'll start ramping down from there.
Haendel, This is Harry. If you were asking about the new acquisition at Brooklyn, that has a 25-year tax abatement. It's fully abated until 2036, there's a five-year bleed in.
Okay, that's helpful. Thank you. A follow-up on the ancillary revenue. I guess I'm curious how much more of an opportunity is there? It sounds like, and maybe I'm wrong, should we infer from the deceleration in this year that the opportunity's been pretty much maxed out and will be on the wane going forward? Maybe you could perhaps share some thoughts on perhaps the additional ancillary income levers beyond maybe the in-home technology that you're looking into, that you can pull that can be incremental to your revenue over the next few years.
Sure, Haendel. I would say this, that the technology won't go into ancillary income. That will be added as rent growth. When you look at the impact of the smart homes, it's probably 10 to 15 basis points of our revenue growth this year, it's going to be more in the rents. When you look at the ancillary income, again, last year, it grew at, call it 11.5%. This year, like I said, we expect it to be high single digits, although we wouldn't be surprised if it got back up to low double digits, depending on success and continuation of parking as well as the short-term furnished rentals. We're still growing it at multiples above what rents are growing. While it's slowing a bit or expected to slow a bit, it's still going to be a strong contributor.
One other avenue that we started getting some traction on last year that we expect to grow this year are renting out to third parties our common areas that are underutilized frequently, especially during daytime hours to businesses. Last year, it was a modest contribution of, call it half a million dollars. We think that this year is going to at least double, we think it's a platform that we've started out on the West Coast, it's moving eastward. I think there's potential for that to grow. I'll tell you, we're constantly looking for additional avenues to grow other income through pieces of our real estate outside of our core apartment units. While those are the items that are on the list today, I'm confident over the next couple of years we'll continue to reload.
Great. Thank you for that.
Thank you. Our next question comes from the line of Daniel Bernstein with Capital One. Please proceed with your question.
Hi, good afternoon. At NMHC, there was a lot of talk about co-living, co-working, I just want to understand maybe what initiatives you have on those and how you're incorporating that into your business model over the next couple of years.
Yeah, we've looked and talked to people about co-living. We really haven't implemented anything. To date, we haven't had occupancy pressures where we felt it was something that was necessary, but it is something we'll continue to study. I do think when you look at the economic reasons that certain individuals move into co-living situations as well as the social side of it, I think it's something that you could see progress, and Harry may want to talk a little about one of our DCP deals in Philadelphia, where they're actually going to have some co-living space. We are seeing examples of new developments that are being actually built for co-living and not just converted existing apartment units.
I think by us being an investor in this deal, we'll be able to actually watch it and see the benefits and some of the cons as they do their lease-up and managing this. Harry, anything you'd add?
Yeah. The DCP deal he's talking about is in Philly. It's near Temple University. About 25% of the 400-plus units are-
To co-living, they kind of created a separate little area within the building, within the property to accommodate these. We'll see how that plays out over the next 18 to 24 months as the developer completes construction and we go through lease-up.
Okay. You're looking at it's not playing a huge role yet within the construct of your properties.
I would say right now it's not playing any role. It is something where.
Okay. All right. Okay. One last quick question, if I could. Predicting job growth is probably like predicting the weather. I'm not going to hold you to the 170,000 a month, I was trying to understand within your guidance, the occupancy and rate growth, is there some range of job growth you're contemplating? Historically, if you look at back at the economic cycles, is there someplace, 100,000 jobs a month, 50,000 jobs a month, where you start seeing some more impact on occupancy if the economy does slow down some?
Yeah. When we go through kind of the overall budgeting process, it's a kind of a two-legged approach from top-down and bottom-up. Bottom-up in the field is really based off of what do they see as competitive supply, what are the recent rent trends that they have, and what's going on from a demand side within their markets. That's really how you get to the midpoint. Of course, we overlay what we see coming from an overall top-down supply and demand standpoint, make sure that we feel comfortable with those forecasts as well and work with them on kind of refining it.
The ranges around it, there isn't any easy one-to-one type of relationship that you can kind of come up with and say, if 50,000 jobs down, here's what it does to revenue, because it is so micro-oriented in terms of the sub-markets, assets, et cetera. We really don't have math that kind of takes you up and down to the high end where we can say 170,000 is base case, if we went to 120, here's where it goes.
Okay. I appreciate it.
Yeah.
Thank you. There are no further questions in the queue. I would like to turn the call back over to Chairman and CEO, Mr. Toomey, for closing remarks.
Thank you, a quick wrap-up. First, thank you again for your time and interest in UDR. We started off the call with a recap of 2018, which was a great year for us, as well as our view of 2019, which we anticipate to be very similar to 2018. We're off to a very good start. It's been a very good rewarding 45 days into the year. With that, I'd like again thank all our associates for all the hard work they've put in and continue to do every day. Take care.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.