Greetings, welcome to UDR's Q1 of 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Senior Director of Investor Relations, Trent Trujillo. Thank you, Mr. Trujillo. You may begin.
Welcome to UDR's Quarterly Financial Results Conference Call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the investor relations section of our website, ir.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. Statements made during this call which are not historical may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements.
When we get to the question and answer portion, we ask that you be respectful of everyone's time and limit your questions to one plus a follow-up. Management will be available after the call for your questions that did not get answered during the Q&A session today. I will now turn the call over to UDR's Chairman and CEO, Tom Toomey.
Thank you, Trent, and welcome to UDR's first quarter 2022 conference call. Presenting on the call with me today are Senior Vice President of Operations, Mike Lacy, and Chief Financial Officer, Joe Fisher, who will discuss our results. Senior Officers Andrew Cantor and Chris Van Ens will also be available during the Q&A portion of the call. Let me start off by saying this remains the strongest operating environment that I or any of my fellow associates at UDR have ever encountered. Demand remains robust, turnover continues to decline, blended lease rate growth has continued to accelerate from already elevated levels, and new supply growth remains relatively stable. These factors, when combined with the accretion we are seeing from our repeatable operating and capital allocation competitive advantages, drove our strong Q1 results and full year guidance raises as outlined in yesterday's earnings release.
We, as an industry, do continue to face a variety of challenges, many of which are out of our control. 1st, inflation. On balance, inflation is a net positive as wage increases correlate to rent growth, and rising hard costs mean higher replacement cost and increased asset values. The downside is higher personnel and repair and maintenance costs, G&A increases to attract and retain associates, and rising interest rates. We have effectively mitigated these negative factors through, one, our platform efforts that constrain controllable expense growth below inflationary levels. Two, proactive debt management, whereby over the past three years, we have increased our duration and have a minimal debt maturities prior to 2025. 2nd, ongoing regulatory restrictions, elongated grace periods once restrictions are removed, and backlogged court systems continue to hamper our ability to efficiently run our business.
The current environment is decidedly better than in 2020, 2021, and while our ultimate collections rate have been between 98%-98.5%, this is over 100 basis points below our pre-COVID levels. Last, how current geopolitical risk may ultimately impact the US economy and consumer remains to be seen. Given this, at UDR, we continue to focus on what we do control, which includes, 1st, utilizing operating and capital allocation competitive advantages when opportunities present themselves. These unique capabilities drive our top and bottom line growth and enhance our sizable controllable operating margin advantages versus public and private peers. 2nd, continually innovating to find the most profitable and efficient ways to conduct our business that are wins for our associates, the company, our residents, and our stakeholders.
3rd, ensuring that we continue to cultivate and enhance our already vibrant, inclusive, and engaging culture as it is and will remain the cornerstone of our success. All in all, I'm excited as I've ever been about our prospects for 2022 and 2023. To all associates listening, keep up the great work and know that the senior management deeply values what you continue to accomplish. Moving on, we continue to build on our position as a recognized global leader in ESG with our commitment to investing in multiple climate tech and ESG-focused funds. These investments should help identify both in the apartment home and property-wide solutions to better address climate change and lower our carbon footprint. Similarly, our commitment to adopt SBTI this year, along with extensive company-wide resources we already dedicated to enhance our sustainability, will help to further refine our long-term ESG strategy.
In closing, we remain very optimistic on the strength of the multifamily industry as well as the ultimate resiliency of the American economy and consumer. We have the right strategy, competitive advantages, and a team in place to capitalize on the opportunities set that lies ahead of us. I look forward to when we can share another update with you, and that most likely will be at Nareit. With that, I will turn it over to Mike.
Thanks, Tom. To begin, strong same-store cash revenue growth of 10.8% topped the range of 10%-10.5% we provided in early March. Key components of this result and our year-over-year same-store cash NOI growth of 14% included, 1st, quarterly effective blended lease rate growth of over 14%. Our blended growth accelerated each month during the quarter, was 240 basis points higher than what we achieved during the Q4 , and benefited from minimal concessions granted. Second, weighted average occupancy held strong at 97.3%, 100 basis points higher than a year ago. Third, annualized turnover was only 34%, decreasing by 530 basis points versus a year ago and 570 basis points below our historical Q1 turnover rate.
These favorable trends have continued into the Q2 . Blended lease rate growth has continued to accelerate to 16%-17% in April, with new lease growth of more than 18% and renewals of better than 15%. This is driven by robust, widespread demand and our ongoing ability to capture our in-place 10%-11% portfolio average loss to lease. Occupancy shows no signs of deterioration as alternative housing options like single-family rentals and for-sale homes have become even less affordable versus multifamily. Based on current rents versus the cost of homeownership, it is 45% less expensive versus 35% pre-COVID to rent than own across UDR markets. Turnover remains light in April thus far.
All else being equal, we expect Q2 blended lease rate growth to range between 15% and 18%, occupancy to average 97%-97.3%, and annualized turnover to remain well below prior year levels due to a combination of higher demand and our continued focus on the resident experience. These trends, combined with the fact that we now have good visibility on 65%-70% of our full-year rent roll, gave us the confidence to meaningfully increase our full-year 2022 same-store revenue and NOI guidance ranges. We now expect to achieve midpoint growth of 9.75% for same-store revenue and 12.5% for same-store NOI on a straight line basis. Relative to our prior full-year 2022 outlook, the drivers of our improved guidance ranges are as follows.
1st, we expect full-year effective blended lease rate growth of approximately 9%-11%, which is 3% higher at the midpoint compared to our prior assumption. For the first half of 2022, we expect blended lease rate growth in the 15%-16% range, implying a range of 4%-6% in the second half. Across our portfolio and excluding the approximately 7%-8% of NOI that remains subject to limits on renewal increases, we continue to see growth rates converge irrespective of market, location within a market, or asset quality. Second, we continue to expect occupancy to remain relatively high and average 97.2%-97.4% or a 10-30 basis point improvement over full-year 2021 results.
Third, we still expect controllable expenses to be limited to 2%-3%. This is 100 basis points below that of our overall same-store expense growth guidance, which we increased by 50 basis points at the midpoint, primarily due to rising insurance costs. Our updated guidance continues to imply a second half slowdown in blended lease rate growth as we approach more difficult prior year comps and regulatory restrictions on renewal rate growth remain in certain markets. There is little at present suggesting a deterioration in multifamily fundamentals, so any upside to this expectation would have a modestly positive impact on 2022 results, with the majority occurring to 2023 via higher earn-in as we move throughout this year.
Based on current guidance, our implied 2023 earnings would be in the low- to- mid-3% range or approximately 50-100 basis points above our highest earnings over the past decade. Moving on. Collections continue to trend above 98% over time, and our 2022 guidance assumes we ultimately collect 98%-98.5% of billed revenue. Our governmental affairs team continuously monitors the regulatory backdrop and works with our teams in the field to develop action plans that address the less than 1% of our residents who remain long-term delinquent. This proactive approach benefits residents, the company, and our stakeholders. Finally, our ongoing innovation continues to bear fruit.
To date, our 250 basis points controllable operating margin advantage versus peers at a similar rent level has generated over $20 million of incremental NOI on our legacy communities. In addition, our unique self-service model, combined with our other capital allocation competitive advantages and strong market growth, has supported year one NOI that is 7% above initial expectations for our more than $1.5 billion of late 2020 and 2021 third-party acquisitions. This equates to a weighted average current yield of 5%, up from mid-fours at the time of acquisition. Given our embedded loss to lease and favorable market rent trends, we see a path to achieving our original underwritten year three yields in the mid- to high-5% range roughly one year ahead of schedule.
Looking ahead, we will continue to find ways that our ongoing innovation can beneficially impact our bottom line as well as our residents' experience with UDR. As we have spoken in the past, we believe improving the resident experience increases retention, drives pricing power higher through pricing engine optimization, reduces controllable expense growth in the form of fewer vacant days, and can lead to UDR assessing a larger portion of our residents' wallet through ancillary services. We remain confident in our ability to achieve our target of at least $20 million of incremental run rate NOI over the next 24 months through these initiatives, while also progressing towards capturing much more over the long term.
In closing, 2022 is off to an incredible start, which deserves a sincere thank you to all my colleagues for their hard work and innovative ideas that keep our company operating at a high level. Now I'll turn over the call to Joe.
Thank you, Mike. The topics I will cover today include our Q1 2022 results and our updated outlook for full year 2022, a summary of recent transactions and capital markets activity, and a balance sheet and liquidity update. Our Q1 FFO as adjusted per share of $0.55 achieved the high end of our previously provided guidance range and was supported by strong same-store revenue growth and further accretion from our 2021 acquisitions. For the Q2 , our FFOA per share guidance range is $0.55-$0.57, or an approximately 2% sequential increase at the midpoint. This is supported by continued positive sequential same-store NOI growth and accretion from recent capital allocation activities, partially offset by increased interest expense and higher G&A as we have enacted wage increases to better ensure employee retention at all levels.
These same drivers led us to increase our full year 2022 FFOA and same-store guidance ranges. We now anticipate full year FFOA per share of $2.25-$2.31. The $2.28 midpoint represents a $0.2 Or 1% increase versus our prior full year guidance and a 13.5% increase versus full year 2021. The increase versus prior 2022 guidance is driven by the following. A $0.4 Benefit from improved NOI, offset by approximately $0.1 each from higher interest expense and increased G&A expense.
For same-store guidance, we have increased our full year revenue and NOI growth ranges on a straight line basis by 125 basis points and 150 basis points respectively to 9.0%-10.5% and 11.5%-13.5%. Due to lower realized and expected concessions for the rest of the year, we increased our full year same-store revenue and NOI growth ranges on a cash basis by a higher amount of 175 basis points. This narrowed the prior 100 basis point delta between our cash and straight line same-store revenue guidance ranges to 50 basis points. Additional guidance details, including sources and uses expectations, are available on attachments 14 and 15-D of our supplement. Next, a transactions and capital markets update.
After completing $1.5 billion of accretive acquisitions in 2021, our Q1 external growth activity was primarily focused on DCP investments and development. 1st, during the quarter, two DCP investments were redeemed. UDR's investment in the projects totaled $58 million, for which we received life-to-date proceeds of $91 million, resulting in a weighted average IRR of 14%. We used a portion of the proceeds to fully fund a new $12 million DCP investment with an 8.25% yield as part of the recapitalization of a stabilized community. We have a strong pipeline of DCP opportunities currently under evaluation. 2nd, we delivered initial apartment homes at three of our active developments, one each in Denver, suburban Philadelphia, and suburban Dallas.
The expected weighted average stabilized yield for these communities is approximately 7.2%. We also replenished and grew our development pipeline with two additional starts, one each in Tampa and suburban Dallas at Vitruvian Park, for a total budgeted cost of approximately $188 million. We believe both projects will be highly value add. Additionally, we are scheduled to close on the acquisition of a land site in Southeast Florida that is entitled for 300+ apartment homes. 3rd, we commenced unit additions at 2000 Post in San Francisco. We have experienced strong demand for our unit additions at 388 Beale in the same market and continue to evaluate similar opportunities across our portfolio. Across three active projects, we are adding 58 apartment homes with expected IRRs in the mid-teens.
Moving forward, we anticipate expanding our redevelopment and densification pipeline to take advantage of the ongoing strength we are seeing in the market. All told, we have a healthy and growing pipeline of DCP, land, and development opportunities. We also continue to evaluate wholly owned acquisitions in target markets utilizing our portfolio strategy and predictive analytics frameworks. To accretively match fund these future uses of capital, we entered into a $400 million forward equity agreement during the quarter. Please refer to yesterday's release for additional details on recent transactions and capital markets activity. Moving on. During the quarter and subsequent to quarter end, we further enhanced our ESG leadership by committing to invest a total of $20 million into several strategic ESG and climate technology funds.
The investments within these funds are intended to be directed toward identifying in-home, property-wide, and more general innovative real estate technologies that are intended to help UDR, our residents, and others reduce our collective carbon footprint. Finally, our investment-grade balance sheet remains liquid and fully capable of funding our capital needs. Some highlights include, first, we have only $290 million of consolidated debt, or just over 1% of enterprise value, scheduled to mature through 2025 after excluding amounts on our credit facilities and our commercial paper program. Our proactive approach to managing our balance sheet has resulted in the best three-year liquidity outlook in the sector and the lowest weighted average interest rate amongst the multifamily peer group at 2.8%.
2nd, as of March 31st, our liquidity totaled $1.7 billion and provides us ample dry powder to continue to accretively grow the company as we identify opportunities. Last, our leverage metrics continue to improve. Debt to enterprise value was just 22% at quarter end, while net debt to EBITDA was 6.4x, down from 7x a year ago, and remains on track for approximately 6x by year-end. Taken together, our balance sheet remains in excellent shape. Our liquidity position is strong. Our forward sources and uses remain balanced, and we continue to utilize a variety of capital allocation competitive advantages to create value. With that, I will open it up for Q&A. Operator?
At this time, we'll be conducting a question-and-answer session. Our first question comes from the line of Nick Joseph with Citi. Please proceed with your question.
Thanks. We've heard from some of your peers about delinquency and collection issues in Southern California specifically. I recognize there's different sub-market footprints and different kind of bad debt assumptions embedded in guidance. Just on the ground, what are you seeing in Southern California through your portfolio specifically in terms of collections?
Hey, Nick, it's Joe. You know, similar to our peers that have kind of spoken to it and EQR here a couple hours ago, we are seeing something a little bit similar. You know, we do have a decidedly lower exposure to Los Angeles, but our Orange County portfolio has seen similar trends. It does seem to be specific to Southern California, where we do have a little bit more of a B quality portfolio and lower income portfolio than Northern California. We saw AR balances tick up about $1 million on a quarter-over-quarter basis. Some of that's due to typical seasonality. We usually do see January and February collections a little bit lower than trend. We also saw applications for government assistance tick up about $1 million as well on a quarter-over-quarter basis.
Similar to what you heard, I think out of EQR is I think there were a number of residents that had been payers in the past that simply stopped paying and trying to take advantage here before government assistance funds expired here in end of March. You know, to date, here early in April, cautiously optimistic as we've kind of dug into it a little bit more that those individuals are reverting towards paying in some cases. I think by the time we get out to June MAA read, we'll have a little bit more commentary for you on the trends that we're seeing there.
Thanks. That's very helpful. I think you talked about the commitments you made to the prop tech and climate-related funds. How did you think about sizing those commitments? And then what are your financial... And I think you touched on some of the strategic goals, but you know, what should investors expect out of those investments?
Yeah, I guess, if you go back over time and look at what we've tried to accomplish here with the first two RET funds, of course, there's the, you know, financial and investment return that we expect to get out of the fund. More importantly, the $1.5 billion of revenue, the $400 million of expenses, the capital allocation and platform benefits, that's really what we've been focused on with the RET funds, and you've seen a number of examples of that throughout over the last couple of years. This is really an expansion of that. When you look at the strategic fund, that $25 million commitment, similar consortium of investors and limited partners there that are focused on a more permanent capital type of vehicle for big picture technologies that will benefit the entire industry.
Think along the lines of CRMs, ILSs, pricing engines, maintenance, and pricing. Some of those type of items more on the strategic side. When it gets into the climate side, you can see that $10 million commitment we made in the quarter. In addition, press release went out last Friday, by RET along with Essex and ourselves, being the founding members of a housing impact fund, so another $10 million investment there. What we're really trying to do there is we've laid out our commitment to SBTI and our plans to move forward with that and advance our industry-leading ESG efforts that we already have in place. This allows us to just get more focused on that.
Looking at in-home tech, outside of home tech, and really having experts that we can tap into on a daily basis that give us access to a lot of the different types of technologies are gonna impact ESG on a go-forward basis and our carbon footprint on a go-forward basis. That's really what we're focused on those.
Thank you.
Our next question is from Steve Sakwa with Evercore. Please proceed with your question.
Thanks. I guess it's still good morning out there. I just wanted to circle back on Mike's comments about, you know, the blended growth. I think you said 15%-16% in the first half, but 4%-6% in the second half. I realize comps get a lot tougher and, you know, maybe concessions are, you know, playing a role where concessions had really burned off maybe by the middle of the year. I guess what I'm really trying to get at is what is the underlying assumption about market rent growth, you know, within your framework for this year, and maybe how has that changed? Or, you know, what's the maybe potential upside to the guidance numbers if market rent growth is faster than what you're currently expecting?
Hey, Steve. It's Mike. I appreciate it. To your point, let me just back up a little bit. You're right. We did say around 14% blend in the Q1 . We expect around 15%-18% in the Q2 . When you look at that, we did provide 15%-16% in the first half. That compares to a 10%-11% we previously guided to. Now we think that back half is around 4%-6%, when previously it was around 4%. The way we look at it is basically trending our market rents. When you think about how it should play out over the next, call it six to nine months, we've looked at previous pre-COVID numbers, and it was right around 2023.
It was right around 4%-6%. Again, we think that it's historical numbers, Steve, and it should play out that way. We'll see how it ends up. What I would tell you is 2022, it's gonna make a minimal impact at this point if it's even want to call it 5% higher. It's really gonna start playing out in 2023. I made that point in my original remarks that it should be upwards of 3% earn in which would be the highest I've seen in my 16-year career here at UDR.
Right. I realize I'm putting the cart before the horse or getting ahead of myself as you think about next year and full year numbers. But that earn in will obviously grow over time if these spreads that you're talking about sort of play out and unfold. I mean, how does the earn in typically change sort of from this point forward? If all of your expectations get hit, does that earn in typically double? Does that earn in go up 50% from here? Like, how do we sort of think about the exit rate, you know, going into next year?
No, it typically grows. It really depends on what happens in the Q3 . With the highest expiration period of time, what kind of growth, and it's really on a growth basis, not an effective basis, what we get at that period of time will really start to impact what that earn in is next year. Again, we're pretty optimistic that 4%-6%, it could trend higher, and if it does, that will lead to a higher earn in next year.
Hey, Steve, this is Toomey. I think one factor that's making it hard to forecast is the record low turnover number that we're having right now. As we come into prime leasing season, does that tick up with these types of price increases? We've seen no sign of that in our notices that we've sent out. That kind of points to the higher side of it, if you will. If everybody else is having the same experience, low turnover, they have more confidence in raising that market rent number. That's Mike just hedging his bets the right way, which is how much is he able to press gross rent with a low turnover number? If this turnover stays, traffic has been extraordinarily strong. I think that's partly technology. Nobody's moving, and we feel pretty damn good about it.
As I think Mike started with, what's most important at this point in time with 65% of the revenue already figured out for 2022 is what's holding us back, how are we setting up 2023? 2023 looks pretty damn strong right now.
Great. Thanks. That's it from me.
Our next question is from Anthony Paolone with J.P. Morgan. Please proceed with your question.
Yeah, thanks. My 1st question relates to development. You picked up some land and you're starting some things. Can you talk about how you're underwriting rents from these levels as you think about, you know, delivering development in a couple of years, and also OpEx and where cash-on-cash return hurdles need to be in the face of just, you know, higher inflation, financing costs, et cetera?
Yep. Hey, Tony. Good to hear from you. Maybe start with current development pipeline because I do wanna mention what's going on there. We did add a couple of new starts here in the quarter, taking that pipeline up to around $700 million. If you kinda bifurcate that into two groups, you know, you look at the lease-up deals are going fantastically well. They're kinda mid- to high-6s stabilized yields at this point, so pretty great performance on those. The newer starts kinda trending towards the higher-5s, low-6s, so pretty consistent with where we've historically been. But importantly, on your question around cost and inflation, majority of those costs on that $700 million pipeline are fully bought out at this point.
I think we only have about $10 million of hard costs that remain to be bought out, and we're carrying a contingency in the high single digits for that one. See minimal risk from a development cost perspective standpoint on those. If you think about what we have coming up in terms of new land, we bought a, or are in the process of, a parcel in Fort Lauderdale. We've also got a number of opportunities that we kinda started to allude to with the equity raise and some of the upcoming uses of capital. We've got Southern California, Inland Empire, Denver, D.C., as well as Dallas. We've got a pretty robust pipeline we're working through on the land side. What I'd say is near term, definitely underwriting above inflationary type of cost increases.
We have seen pretty substantial cost increases over the last 12 months, a lot of that on the hard cost side and a lot of that driven by labor in some of those hotter Sun Belt markets, if you will. From a yield standpoint, we're holding pretty close to where we've historically been. Current yields kind of 5.25-ish, and on a stabilized basis, kind of high 5s, 5.75, 6-ish%. When you think about the value creation margin, still commensurate with what we've talked about historically when you look at a, you know, 3.5-4 cap type of market. We're still looking at 150, 200 basis points of margin or value creation, which is in line with history.
We got a little bit juicy there for a while when cap rates compressed and yields held up, but now we're back to normalcy.
Okay. That's real helpful. To get into those fives, yields going in, do you have to do much with rents compared to where they are today?
Yeah. The 5.25%, the way we look at it on a current trended basis or a current basis, it's a current rent in the market for what that asset would attain today relative to a trended cost basis, and having an above-inflationary cost trend on that. That gets you to 5.25%. If we keep those costs where they're at, and as we go through development and lease up and get to stabilization, we'd expect those rents to grow at kinda long-term averages of ±3%. That gets you to roughly 5.75%.
Okay, great. Thanks for that. I'll just stick with you for just one 2nd question. The bad debts, did you have a number for the Q1 ? I may have missed it, just on a percentage basis, I guess, net of any reversals or the government stuff. I didn't catch that.
Yeah. What we effectively had when you look at the combination of write-offs plus reserves, we've been able to go back over time throughout the last couple of years, and collections over time typically get to ±98.3% in this environment. You can think about a net bad debt number of 1.7% between a combination of write-offs in the quarter and incremental reserves if there are any to that extent. When you look at our bad debt versus reserves in the quarter, accounts receivable was just over $24 million, about a $1 million quarter-over-quarter increase. The reserve against that came down slightly to roughly $12 million, so about 50% reserved.
The reason it came down was because we continue to have better and better history over time of getting to that 98%+ number over time. The other way I'd kinda think about it is you have $12 million of unreserved risk. The way we get comfortable with that is if you look at three different buckets, we've got about $11 million out there in government assistance applications, which we believe are close to money good over time. There's just delays within those processes. You have another $7 million of partial payers over time. Those are individuals that have demonstrated a willingness and ability to try to make good on their rental payments, but sometimes it just takes them longer than normal.
We think over time, those will start to come in, maybe not to the 100% degree, but definitely some of those will come in. You have about $6 million of long-term delinquents, which are the residents that, you know, despite all of our efforts to work with them on government assistance, on payment plans, on relocation options, things of that nature, they have really settled in. Those are the individuals that, you know, we're trying to continue to work with. If they choose not to, then those are the ones that we'll be going to court with and trying to get those units back over time.
Yeah, Tony, just to add. This is Toomey. You know, I think the bad debt, this whole system we've been through over the last couple of years, the team's done an exceptional job of getting out in front with the government aid. Getting in front of our residents, understanding where the situation is, work with the people we can work with. For the ones that, you know, to be a little free squatting on us, the court systems are starting to open, and they see that piece of the equation. I think as the year goes by, this gets back, if it's 98%-98.5% collection type process. I'm not sure we'll get back to our pre-COVID window of 99.5%. I think it's just gonna be challenging with some of these municipalities to get there.
If I'm thinking about 2023, I think we're generally running in our mind at 98.5% next year with a hope that we get 50 basis points above that. That'll be next year. This year, I think the story is just about over and it's just grind it out.
Okay. That's helpful. Thanks for the 2023 look there.
Our next question is from Nick Yulico with Scotiabank. Please proceed with your question.
Hi, everyone. Thanks. In terms of the guidance, first question is just on interest expense that going up. Joe, maybe you could talk about what drove that higher.
Hey, Nick. It really has to do with the floating rate side of the equation. We've done a pretty exceptional job over the last two to three years, going after our maturity profile, doing a lot of prepays, locking in lower cost debt down in the 2%-2.5% range versus the, you know, kind of low- to mid-3s in place today, or low- to mid-4s, sorry. We've done a great job on that front. It doesn't have to do with anything that we had planned in terms of new issuance or refi activity. It's all floating rate oriented. We've got about $400 million plus or minus of floating out there, call it 6%-7% of total debt stack.
As the curve has obviously ticked higher here to start the year with Fed rate hike expectations, we just updated for where the curve is expected to be. To add about $2.5 million or, you know, $0.006-$0.007 impact on the outlook here.
Okay. Got it. I guess as we think about there's, you know, some moving parts for the rest of the year in terms of, you know, you may raise debt or you may not, right? I think you have that guidance range of $0-$250 million of debt issuances. You have that swap expiring on a piece of the term loan, commercial paper rates presumably going up. I guess maybe for those pieces, if you could just give a feel for if that's already factored into guidance or if there's, you know, also a chance that maybe interest expense could, you know, creep higher than guidance because of some of those issues.
Yeah, I feel pretty good now at this point in terms of where we're at. We have a little bit of cushion in there, most likely if we got another 25 or 50 basis point raise beyond current expectations. The term loan and the swap associated with that is definitely in there. You did mention we do have the term loan swap for another 50% of that termed out for a couple more years at a fairly low rate, so that is locked in. The swing factor on debt is simply going to be, you know, do we have that equity deployed and do we ultimately lever some of that equity given the capacity that we're creating here? Right now, that's up for discussion given that additional debt issuance isn't necessarily accretive in this environment.
We've accounted for a potential range there in terms of $0-$250 million, but not necessarily certain that we'll act on it. We're gonna evaluate the environment as we go forward, later in the year.
Okay. Very helpful. Thanks, Joe.
Our next question is from Brad Heffern with RBC Capital Markets. Please proceed with your question.
Yeah. Hey, everyone. Obviously, you took up the acquisition guidance this quarter without anything actually getting done in the Q1 . Can you talk about the pipeline and also your thoughts on your expectations for accretion just given the negative leverage environment?
Yep. Hey, Brad, it's Joe. I think stepping back a little bit, you know, we did do the equity here in the Q1 towards the end of the quarter, $400 million at just about $57, $57 net. What we saw at that point in time was an increasing opportunity across kind of all of our value creation arms between developer capital program, redev, development, and acquisitions. After kind of six months of no equity issuance, de minimis external growth, where we sat back and really just couldn't find opportunities that fit with what we were trying to do from a platform perspective and an accretion perspective, we are starting to see more of those opportunities today. We felt it was the right time to do the equity.
You know, as I tick across to each of those within the developer capital program, we did announce a recap transaction there in the quarter. But beyond that, we do have plus, a ±$100 million pipeline of opportunities there that we think we'll get some or hopefully all done over the next 12 months. We do feel very good about continued deployment on the DCP side. On development side, you know, we mentioned the Fort Lauderdale land acquisition, and in a prior question mentioned, you know, we've got $100+ million of other land sites that we're working through various points in the process on. That will add to the uses as well as forward uses and capacity there.
On the acquisition side, you know, we've got a deal tied up in suburban Boston right now that is in the low fours forward cap rate range that checks a lot of the boxes that we've talked about previously in terms of, you know, the operational upside, the platform efficiencies, the capital expenditure programs, et cetera. Between all of those, you've already got ±$400 million of identified uses. That leaves another several hundred million there that we'd hope to utilize for acquisitions as, you know, the market continues to come our way.
Has there been any noticeable change in competition as you're looking at new acquisitions?
Hey, this is Andrew. I just was out at ULI and which provides, you know, great market check out in San Diego. What I can report back to you is that there's a very active market that we're participating in? There's a continued wall of capital looking to increase their exposure to apartments. Listings on new deals is not diminishing. In fact, there's a record number of deals year to date. It's up about 60% over 2021. And as we know, there's continued great fundamentals. What we're starting to see as it relates to the pricing side is it really varies based on location and asset quality and buyer type?
Buyers are being a bit more patient and looking to be opportunistic with pricing retrades, and sellers are seeing thinner buyer pools due to the abundance of options available in the market. You know, this has impacted the seller's ability to push pricing after initial bids have been received. You know, movement in interest rates is clearly the largest driver that's impacting pricing and therefore levered buyers are seeing more of an impact on pricing. Unlevered buyers and low levered buyers are still very vibrant in the market. In our markets, you know, we're seeing the market, as Joe mentioned, come to us. We're seeing, you know, pricing flat to down as much as 10%. Although as always, it depends on the property and the market.
You know, we're seeing the biggest changes in assets that have run the most in pricing recently, and those that are attracting buyers that are using the highest leverage points. On average, you know, cap rates compressed roughly 100 basis points over the last year to kind of that 3.25%-3.75% range as buyers were able to underwrite and capture the significant mark to market in the rent rolls. Today, we're seeing cap rates closer to 3.5%-4% and a little bit higher.
Markets like San Francisco and New York haven't been as impacted as they continue to have runway of rent growth versus communities in the Sun Belt that have already benefited from significant rental increases in the run rate over the last several quarters. You know, what I'd end with is, you know, it's important to remember that, you know, although pricing has recently moved, you know, like I said, flat to slightly down, you know, over almost all assets across our markets and across the country have seen a rapid increase in pricing. Even today, with those pricing changes are still more valuable than they were 8-10 months ago.
Got it. Thank you.
Our next question is from Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.
Yeah, thanks, guys. So on the last call, you guys talked about entering 2023 with a mid- to high-single-digit loss to lease. I was just curious if the updated guidance assumes that you recapture, you know, some of that loss to lease, and so you'd be entering next year, I guess, at a lower loss to lease position, or if you still think that you could be within that range.
Hey, Austin, it's Mike. We actually still think we're in that range as of right now because with the updated guidance in that back half, we do think market rents are slightly higher than what we provided last quarter. That'll help with that loss to lease as we enter next year.
Got it. Then I was just curious if you could talk about where you guys are seeing construction pick up. I mean, yourselves and a number of others had started to, you know, pick up a little bit on the development side. When you look across all your markets, where do you see that picking up the quickest? And at what point do you think you start to see supply pick up in any meaningful fashion that it could, you know, maybe hinder your ability to drive?
Yeah. Hey, Austin, it's Joe. I think near term, feel very good about the supply picture in terms of it's remained relatively constrained. This year in our markets and submarkets, we're up probably 10%-20%, but that's only about 1.7%, 1.8%, 1.9% of stock. So very, very manageable level, especially given the level of demand that we're seeing out there. So no real concerns near term. There's obviously some markets that as a percentage of stock or year over year growth are a bit more concerning. A couple of the Sun Belt markets have percentage of stock up in the 5%, 6%, 7% range.
Some of our coastal markets have a little bit of a residual impact, like, New York or Seattle that still have some supply coming through from kind of pre-COVID starts. I think that starts to dissipate when you look at the coast on a go-forward basis next year. Permits obviously dropped off quite a bit, during the downturn in the coastal markets as capital continued to flow into Sun Belt, and therefore development dollars and permits were flowing into Sun Belt. You could start to see more pressure in the Sun Belt. Permit-wise, they're still up 40% versus pre-COVID. You'll probably see some pressure there coming.
You know, markets like Raleigh and Atlanta and Charlotte that we're not in, as well as probably Austin and Nashville, continue to see some supply pressures, but balanced with really good demographic and population growth. They're finally seeing income growth there, which they haven't seen over time. Hopefully ability to absorb some of that supply. Generally speaking, supply is pretty well constrained at this point in time.
Hey, Austin, it's Toomy. I think Joe did a great job of running down the markets. A couple of things to really weigh is housing as an industry. You've seen it most recently in the single family side, where the overall demand for household formation is about 4 million annually, and we're still producing about two. Single family has taken a little bit of a hit lately with the rate increases, the price run-ups. That always pushes people or keeps them in their apartments longer. Honestly, I’m not overly worried about the supply equation, given that single family probably has to take a pause, if not retreat.
That's gonna give us at least through a strong 2022, head into 2023, again, another wind at our back that looks favorable for us. With the difficulty in trying to build in this climate, it's going to slow down that supply equation. I think it's all gonna translate into a pause on the supply side, not an acceleration. We'll work our butts off to try to keep it at this level. That's gonna translate to pricing power on Mike's side of the operational equation. Feel really good about that part of the business. That demand side, we're seeing strong demand. I mean, strong would be polite. Extraordinarily strong demand across all our markets still.
Yeah. Thanks for all the detail.
Our next question is from Rich Hill with Morgan Stanley. Please proceed with your question.
Hey, good afternoon, guys. I wanted to come back to this question about, or this topic about earnings. The reason I focus on it is because there's a lot of focus on rate of change. I think the comment that you're making is really important. I just wanna make sure I understand it and I'm unpacking it correctly. I think what you're suggesting is, while the rate of change might begin to decelerate, rents are still rising in absolute terms, and that creates embedded growth in 2023 as a starting place of around 3%. Then you have growth on top of that based upon wherever you can take occupancies and leasing spreads. Is that the right way of thinking about it?
Hopefully I'm not asking a painfully, you know, naive and dumb question, but if you could just help me unpack it a little bit more, that would be helpful.
No, Rich, I think you just nailed it right on the head. That's the way we think about it. As we think about that back half again, a lot of that is going to be gross rents. When we entered this year, back half of last year, it was mainly effective. A lot of that was a burn-off of concessions. As we move forward, we're gonna continue to see these market rents rise in some of these markets. For example, San Francisco, Boston, Seattle, and D.C., even to some extent, are off the charts right now compared to what we've historically experienced at this time of year.
As you have that and you go into some of those higher LEM periods of time, that's going to start building up your 2023 as well as help you out a little bit in the back half of 2022.
Yeah, I understand. It's an earnings power statement, which makes a ton of sense. Can I ask one follow-up question on renewal spreads? Your renewal spreads are super impressive, especially in April. Maybe walk us through why you're able to push those renewals as much as you can. I suspect some of it has to do with the record low turnover and tenants just, you know, willing to accept a renewal as a bird in hand better than two in a bush. Can you just walk through that dynamic and what you're hearing with negotiations?
It's a really good question. It's, again, you hit it right on the head. What we're experiencing is with these market rents rising the way that they have been, and we really pushed hard coming out of the gate in January, February, that allowed us to push aggressively on our renewals because on the new side of the equation as well, on the market rents, they were supporting those growth rates. As we've gone out there, and we said a couple months ago, we were going to be sending out in that 14%-15% range. Thankfully, market rents continued to move the way they were going, and it allowed us to not have to negotiate with a lot of our residents because frankly, the markets have been increasing at such an incredible rate. You have that.
I will tell you do have low turnover, which continues to support that. As we move forward, we're definitely anniversarying off of some higher numbers, especially as it relates to the Sun Belt. So we'll have to see how that plays out. Right now, we're still sending out anywhere from 14%-15% through July at this point.
Hey, Rich, it's Joe. Just to follow up on that, 'cause while there's a lot of either cyclical or structural dynamics here at play in terms of the record low turnover levels, the relative affordability and reasons to want to live in apartments, I do think it's important to not lose track of what it is that Mike and team are doing differently. I know you were kind enough to host us in Chicago last December and spend a lot of time talking on the platform and what we're focused on on customer experience.
I think it's starting to bear fruit as well in terms of, you know, the data that we're utilizing to understand resident decisions, you know, changing our actions and activities on a day-to-day basis so that we can actually give them a better experience, address issues that they may be having, and ultimately change the outcomes for that resident and, you know, entice them to stay. It's not just about rent and how much they're paying out of their pocket each month. It's about what the experience that they have with us. Do they like being there? Do they like the neighborhood? Do they like the people? We're doing a lot of work behind the scenes on that. There are some UDR specific factors that I think play into this in terms of that retention number.
Yeah, I think that's a really good point, and hopefully Trent's relaying to you the number of prop tech investors that want to speak to UDR specifically on what you're doing different. Get ready for more of those.
We're happy to help.
All right, guys. Talk soon. Thank you.
Our next question is from John Pawlowski with Green Street. Please proceed with your question.
Thanks for the time. Andrew, I wanted to come back to your comments on your starting to see and your industry colleagues are starting to see pricing flat to down 10%. Can you give us a sense for how broad-based that is? Is it a small handful of deals getting kicked to you, or are you starting to see a broader trend?
Yeah, yeah. You know what we're starting to see more broadly is that the buyer pools are thinner like I talked about. When you're getting more
You're seeing less of the pricing move above or get to the levels that we saw earlier in the year. In general, the best assets are still pricing flat to slightly up, but it's really those assets that are further out that benefited from the demand in the marketplace. Those are the ones that you were looking at, but you weren't really paying as much attention to are the ones you're seeing the larger price changes on. The ones that we've been buying in the core assets have had a much smaller number of reductions. They're much closer to the 0%.
Okay. Makes sense. Just a few final questions on revenue-enhancing CapEx. You guys, the last 7-10 years have been quite steady and just in terms of the revenue-enhancing CapEx spigot being open. Now you have a very long time series of this spend. Have you looked at how kind of all-in unlevered IRRs have compared to other alternatives out there, just buying additional buildings? I'm just curious in terms of durability, is cash flow different? Yes, you get a pop on year 1 rent, but how do, like, all-in economics stand up versus alternatives?
Yeah. Hey, John, it's, I'll say it depends. So you kind of have a broad range within the spectrum, right? In terms of, you know, if you do unit additions such as what we're doing on attachment 10, and you have kind of that perpetual life infrastructure that you're putting in place, obviously, the cash-on-cash return that you need day one to achieve your cost of capital is much lower. If you go to the other end of the spectrum and do shorter duration, you know, NOI or revenue-enhancing CapEx, so a K&B program that may be an eight to 12-year useful life, you're gonna need a higher cash-on-cash return up front to still get to what we typically target, which is 150-200 basis points above our cost of capital, from an IRR perspective.
We do a pretty active monitoring process throughout the year. Mike's team, you know, all the deals that are approved to start the year, they're constantly killing off and canceling deals that aren't attaining the rent premiums that we initially underwrite. Then they'll bring new deals to the table, as different markets move, and we think we can get pricing power and upside on alternative investment options. We try to be pretty disciplined around it. I'll say the challenge within that is always, you know, how does that premium hold up over time in year eight or year 12 or year 15? There is a little bit of art, not just science, involved in all of this, but I do think we've got a pretty phenomenal track record on that front.
Okay. Maybe we could talk more at NAREIT. Just final question from me. Given this has been very recurring, at seven straight years, you've spent over $40 million per year in revenue-enhancing CapEx, at what point do you have to disclose that or include that in AFFO as recurring?
I think the industry standard approach has been what's considered, more the maintenance side, and so what's asset quality, what's turnover CapEx, that I would say is generally not something that we have discretion over. Those are dollars that you need to spend year in and year out. What we're doing from a NOI enhancing perspective is trying to change that property, so hoping to take it from a B- to a B+, if you will. Trying to upgrade the quality of that property, that's not something that we have to do year in and year out. We could, of course, choose to turn off that spigot. I think our disclosures are pretty consistent with how the industry looks at it.
That said, I know yourself and others, as well as ourselves internally, spend a lot of time looking at full CapEx loads and looking at those not just on a per unit, but as a percentage of NOI basis, which I think is important. When we benchmark ourselves versus our public peers and where our portfolio should be, we do find that recurring plus NOI enhancing is right down the middle.
Okay. Thank you.
Thanks, John.
Our next question is from Neil Malkin with Capital One Securities. Please proceed with your question.
Hi, everyone. Thanks. 1st one, just in terms of capital allocation, you know, the Southeast Florida parcel, I don't think you have any, you know, investments there or assets there. You know, typically, you guys are more of a, you know, kind of cluster it. You use the synergies and scale of the market and the operations to, you know, get the maximum, you know, profitability NOI. Is your plan to, you know, increase your presence into the Fort Lauderdale sort of southeast market, you know, post the potential development? Thanks.
Yep. Hey, Neil, it's Joe. We do actually have one asset down there that we've had for a fairly extended period of time. It's a little bit buried in terms of ability to see it on our typical market disclosures. We group that into the other market category. If you go to attachment 7A within the sup, you can see we do have a Palm Beach asset there for 636 homes. We've had exposure there. It's a market that's, you know, between Broward and Palm. We've kept our eye on that market for a while and been trying to find opportunities. The hope would be that we could continue to grow that exposure over time. You know, we've liked that market for a while, just finally found an opportunity that worked for us.
Yeah, other one for me is on, you know, SmartRent. I know that's obviously they are a big part of your next-gen ops platform. I'm just wondering, you know, with the sort of share price performance, are you concerned about, like, them as a going concern entity? Just again, given that you rely very heavily on their software platform to sort of, you know, to run your business? Or are you know, confident in their, you know, liquidity and just, you know, not an issue?
I would say at this point in time, absolutely no concerns from a going concern perspective. I know that their share price has come off from when they did the SPAC, and so that has impacted in terms of the, you know, mark to market on our investment there. I think the, you know, valuation on our books today is roughly $55 million or so off of a $5 million investment. When that gets marked next quarter, it probably comes down a little bit more. From a going concern perspective, absolutely not. They've continued to perform for us, continued to do installs, as we expect, so no operational concerns, no install concerns. The products work fantastically well for us across the board, not just on expense savings efforts, but also on, self-touring. Don't see any issues there.
When you look through at their balance sheet, from a cash and liquidity perspective, no concerns there either. Obviously, they're just not immune to supply chain disruptions, which I think has had an impact on, you know, valuation and multiple, as has the drawdown in broader tech. Definitely don't think that's a going concern issue.
Neil, this is to me.
Appreciate that, Peter.
Go ahead, Mike.
You know, that question really dovetails into risk management. With any of our technology, we've always looked at it and said, If there's a hiccup, are we able to sustain our business model, our interaction with our customer? I can assure you with respect to SmartRent, we work hand in hand with them on being able to sustain our business model should there be any disruption by a third-party vendor in any part of our business. I think that's just good risk management. Everybody understands it in the industry, and SmartRent's very cooperative. To emphasize on Joe's point about a going concern, we're not gonna comment on other company's business, but what I will say, that product is industry leading and will only continue to grow in penetration and usage.
When the supply chain aspects are solved, none of us know that. If you do, tell me. They're gonna go right back to the races because their book of business is huge.
Sure. Thank you, guys.
Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question.
Hi. Thanks for the time. Just a question on renewals and, I guess, affordability. Chris, I think you said in your prepared remarks that renewal growth should slow given some pressure across some markets. I was maybe just hoping you could expand on that as well as comment on where renewals are being sent out for maybe June. I think you'd maybe have a sense for that or those have gone out. Just how affordability is at this point given some of the precipitous increases we've seen in the blended and lease rates across the board.
Hey, Juan. It's Mike. I'll take that. Just as it relates to the affordability piece, I'd tell you those rent-to-income ratios, something we watch very closely, they haven't really changed a whole lot. With wage increases happening at the rate that they're across all of our markets, we feel pretty good about that. What I mentioned with some of these renewal increases as we move forward, we are sending out again in that 14%-15% range as a whole. We are seeing some of the markets where you're seeing a little bit more pressure, a little bit more turnover as it relates to rent increases. Just to give you an example, you look at a place like Tampa for us, where we've had very strong rent growth. We're going on almost two years of pushing out double-digit renewal increases.
We think that that's gonna be a little bit more pressure as we go into 3Q, 4Q, because that's when we started pushing so hard last year. I'll tell you, when we get into some of this data, some of the big data that we have here, we are noticing that in a place like Tampa, where we have longer tenured residents, they're moving out quicker than, say, some of the shorter tenured residents. On the flip side, a place like New York for us, it's the opposite. In New York, you have people that came in over the last year or so, they got a huge concession. You are seeing them move out at a higher rate than some of the people that have been with us for over two years, for example.
Those are just some of the metrics we continuously watch, and we'll continue to watch them as we move forward. I think as we get into May rate, we'll have a lot more information on what's being sent out and what we're signing as we go into, call it, 3Q.
I think too, Juan, as you think about that affordability piece, Mike went through the rent to income, but thinking more broadly than just multifamily and isolation, obviously the affordability relative to single family has improved dramatically. While our rent to income's versus pre-COVID are plus or minus the same, that relative affordability versus single family has gone from, I think, 35% cheaper to about 45% cheaper. A huge swing there given home price appreciation combined with where interest rates have moved recently. Multifamily wins on that metric every time.
Is the way to think about what you talked about in Tampa, that the people who've maybe moved down with a higher income, at least initially maybe from New York, had a much bigger budget to spend, and therefore drove up rents. Rent-to-income ratios didn't move because they were coming in at a much higher price point, I guess, given their income. That benefit is subsiding, and you don't really have that arbitrage as much going on. Is that kind of what's going on?
Yeah, that's a good way to look at it. We think that they are a little bit more stickier. We think they've created a lot more jobs down there. The wage growth has been incredible, so that's helping out as well. That's just some of the experience. Again, it's only a couple months of information right now, so it's not necessarily a trend yet, but it's something we're definitely starting to watch.
1, to me, just give you a couple of data points that are helpful. 1, it's great that Mike has all this data at his access and can look at how he's pricing and thinking about the future, with respect to turnover, pricing power, what our resident composition is. On the rent-to-income piece, with record low turnovers, our average resident's 34 years old. They've been with us on average 28 months. So over that 28-month period, I can guarantee you they've gotten a few raises. Their positions have improved. Income growth is a huge driver of potential pricing power. We, as you can see in our G&A number, we're handing out raises, and that's what it takes. If you've hired anybody lately, you've probably been a little shocked at the sticker.
Wage growth in America, we haven't seen this type of numbers moving. I can't remember ever seeing this type of numbers moving. I think that embedded resident who's been with us for three, four years has done really well and has the ability to pay these higher rents. That's hard to capture in a real-time database.
Got it. Thank you very much.
Our next question is from Joshua Dennerlein with Bank of America. Please proceed with your question.
Hey, everyone. I want to explore a similar topic. In the opening remarks, you mentioned that renting across your portfolio or within your markets is, I think, 45% cheaper than owning across those markets. I guess, what's the long-term average? Maybe how should we read into this? Does this imply we'll see kind of rents kind of keep climbing, so you get to that more normalized level? Or maybe it's just not even mean reverting. Thanks.
Yeah. I think, thanks, Josh. It's long-term average is ±35% cheaper when you look across our markets, and that's really looking at kind of a trailing 10-year type of number. I think when you get to kind of these levels of extremes, you know, we go back to financial crisis when, you know, homeownership peaked out around 69, dropped into low 60s, and so you went from a homeownership nation to more of a rentership in terms of household formation. I think if you use that as an example, I think it bodes well in terms of as new household formations are formed, rentership should gain more than their fair share of that housing and of that demand.
I think it's another tailwind as we kind of head into 2023 and look at, you know, population growth, income growth, hopefully improved immigration policy. The relative affordability piece definitely tilts in our favor. I think it's just more of a long-term benefit for us, hopefully.
Okay. Any particular market kind of stand out if you look at it on a market-by-market basis or just portfolio wide?
Yeah. We've looked at both individual markets and obviously from a bigger picture, just portfolio perspective. I think it's interesting when you look at some of the coastal markets. Yeah, that dynamic has actually improved a little bit versus long-term averages. Coastal markets always are significantly more expensive to own than rent. That's probably moved even a little bit more so than the average in terms of rentership's favor. If you go down to Sunbelt, still has improved, but probably not quite as dramatically.
Got it. Thank you.
We can do a follow-up call if you'd like, and kind of go market by market.
Yeah, that'd be interesting. Thank you.
Yep.
Our final question comes from the line of Connor Mitchell with Piper Sandler. Please proceed with your question.
Hi. Thank you. Thank you for taking my question. I have two questions. 1st, you're running at about 97% occupancy and recently raised $400 million, both of which sound like positioning the company for potentially tougher times ahead. At the same time, you guys sound enthusiastic on new investment. Can you help us understand, are you leaning more towards an offense or a defensive position?
Yeah. Hey, Connor, it's Joe. I definitely wouldn't say that the raising of equity signals that we're positioning for more defensive times ahead. If you go back to what we did last year, where we issued $1 billion plus of capital and invested a $1 billion plus on third-party transactions, we did that because we had a good cost of capital and opportunity set that was accretive for investors. Those assets now that you know we bought at kind of you know low 4s and thought they'd grow over time on a mark-to-market basis, I think they're up into a mid- to high 5s yield at this point in time. That's done fantastically well. I don't know if this next round of capital deployment is gonna be quite as accretive, but we hope that it will.
We've got a lot of unique value creation drivers that, you know, when we find the opportunity set out there, which at times are difficult, it takes a lot of effort, but if we can find them, then we're more than happy to raise that equity. I think on the 97% side, I don't think that's necessarily a defensive mechanism. We've consistently run above 97% over the last several years other than kind of early in the COVID crisis. We think we can actually run higher than that over time.
When you look at what we're doing in terms of trying to compress vacant days and how we're trying to retain more residents through the customer experience and then continue to augment and re-engineer the pricing engine, we don't see why that number doesn't actually go higher while not actually sacrificing anything on the renter revenue side. I think that number should tick higher over time. I definitely say we're not positioning defensively. That said, we're very cognizant of the risks that are out there right now.
Okay. Yeah, that's helpful. My 2nd question is, the apartment community has been pretty well organized in California to advocate for open markets and against rent control. Are you seeing this banding together effort in other markets like New York, Boston, D.C., et cetera, to advocate similarly?
Yeah, Connor. No, that's a good question. This is Chris. I mean, obviously, CAA is very well-funded. They're very well-connected. They're probably the preeminent organization, apartment organization, at the state level around the country. But you see a lot of cohesion in the State of Washington, for example. You mentioned New York with, either REBNY or RSA. A lot of the large players advocate, you know, with them, with our dollars, with our time, all that kind of stuff. The exact same thing down in D.C., Maryland, Florida. I think all of us are very involved, really in every market. You know, it's different than five to 10 years ago.
10 years ago, if you thought about things like rent control, just cause eviction, et cetera, you know, there were a number of states, largely in the Sun Belt, that you just didn't even have to pay attention to. That has changed. We're not seeing a lot of action in those states yet, but there's definitely more discussion on the topic. Yeah, we are heavily involved. All of our public peers are heavily involved. Once again, you know, we have to keep on educating people, the decision-makers, the voters about why rent control is not the most effective way to address affordability issues.
All right. Also helpful. Thank you.
There are no further questions in the queue. I'd like to hand the call back over to Chairman and CEO, Mr. Toomey, for closing comments.
Thank you for all of you and your time and interest in UDR. You know, I started off the call with the strongest operating environment in my career, and I cannot reemphasize that. This is one. It is the strongest, no question about it. But looking over the Q&A and the topics, and we appreciate all of your interest and those questions. I see a trend towards what are the short-term aspects of our business and how is it performing, and we can appreciate your interest in that level. But I also think it gives us an opportunity to focus on what's the long-term value creation. The industry is in great position. A lot of participants are doing very well, creating a lot of value.
As we look at UDR and its uniqueness and how we can sustain that and provide exceptional returns, it always starts with the culture of the enterprise. The culture is very strong. We've come through COVID and prospered well during that environment. It's also the processes that we use, both decision-making, disciplined, and data. I think the things that make us unique and different is our innovation, our technology being applied and delivering margin advantage. Lastly, having a broad set of opportunities and value creators, whether that's market exposure or different programs to create value through all cycles. That is the value of an enterprise, if they can manage all cycles and continue to create value throughout. I'd like to thank all my associates, fellow associates. Strong quarter. We're approaching prime leasing season.
Excited about it, what the platform's gonna be able to do and continue to grow. With that, I'll close and say we look forward to seeing a lot of you at Nareit in a few weeks. Take care.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.