Greetings, and welcome to UDR's third quarter 2022 earnings conference call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. It is now my pleasure to introduce your host, Senior Director of Investor Relations, Trent Trujillo. Thank you. 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 measure in accordance with Reg G requirements. Statements made during this call which are not historical may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. When we get to the question-and-answer portion, we ask that you be respectful of everyone's time and limit your questions to one plus a follow-up.
Management will be available after the call for your questions that did not get answered during the Q&A session today. I will now turn the call over to UDR's Chairman and CEO, Tom Toomey.
Thank you Trent and welcome to UDR's third quarter 2022 conference call. Presenting on the call with me today are Senior Vice President of Operations, Mike Lacy, and President 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. To begin, we continue to see exceptional results and are in a healthy multifamily operating environment. Highlights of the third quarter include the following. Sequential same-store revenue growth of nearly 5%. Year-over-year same-store revenue grew almost 13%, and NOI was nearly 16% higher. We continue to capture additional accretion from our 2021 acquisitions. These results translated into 18% year-over-year growth in FFOA per share and drove our third guidance raise this year, which Mike and Joe will discuss in further detail.
To date, the financial health of our residents has remained strong. Employment growth continues to demonstrate resiliency. Wage growth remains robust. Traffic is healthy. Rent-to-income levels of incoming residents has not deteriorated. Cash collections continue to improve. Concessions are almost non-existent across the portfolio, and the regulatory environment has been stabilizing. These factors, combined with our favorable relatively affordable versus alternative housing options and reasonable new supply expectations, create a positive near-term outlook for multifamily. In short, Main Street has shown incredible resiliency. Moving on. All in, we continue to believe UDR is well-equipped to manage whatever macro environment we face based on what we know right now and what we can control. First, our customer remains financially sound. Second, our jump-off point for 2023 has never been better as our same-store revenue earn-in is roughly 5% effectively locked in at this point.
Third, our continued focus on innovation and culture should continue to enhance our margin growth. Fourth, prior FFOA per share headwinds like development and lease-ups become tailwinds in 2023. Last, our balance sheet remains highly liquid with over $1 billion of capacity. That said, we're fully aware of growing concerns over where the macro environment is trending and the challenges our business could face moving forward. Two areas to highlight include, first, elevated inflation. We, like most every business, are feeling the impact of inflation across our expense structure. Thus far, we've been able to pass these costs on to our residents in relatively short order given our standard 12-month lease structure. Specific to the third quarter, a portion of our elevated expense growth was anticipated as we continue to push rental rate growth, which resulted in higher turnover and elevated repair and maintenance costs.
However, building a better 2023 rent roll at the expense of short-term cost pressures is a value-creating trade for a 70% margin business like ours. Second, our cost of capital. Our cost of capital has increased materially since the first quarter. As such, we pivoted to a capital-light strategy and pared back opportunistic external growth. Our balance sheet remains fully capable of supporting all planned capital uses, and with less than 2% of consolidated debt maturing over the next three years, our interest rate risk is minimal. Moving on, we continue to build on our position as a recognized global ESG leader with the publication of our 4th annual ESG report and a five-star designation from GRESB, the highest ESG rating possible. Our GRESB survey score of 87 was the highest in our history and an achievement that all UDR stakeholders should be proud of.
In closing, I remain optimistic on UDR's future prospects. We have a highly talented, experienced team with a track record of performance irrespective of the economic environment. Combined with our culture that fosters collaboration and innovation mindsets, we will continue to advance UDR and our industry. To my fellow associates, I express my deepest gratitude for all that you do. With that, I will turn the call over to Mike.
Thanks Tom to begin strong sequential same-store revenue growth of 4.7% drove year-over-year same-store revenue and NOI growth of 12.7% and 15.5% on straight line basis. This was an acceleration of 150 and 110 basis points respectively compared to our second quarter results and were better than expected. Key components of these results and our demand drivers included, first, year-over-year effective blended lease rate growth remained firmly above historical norms at 13.1%. We traded a nominal amount of occupancy to achieve this rental rate growth, but also improved our 2023 rent roll and locked in more of our approximately 5% 2023 earn in. This will be the highest earn in our history by at least 200 basis points. Second, our in-place residents are increasingly paying rent on time.
Collection rates improved sequentially in the third quarter, and the number of long-term delinquent residents in our portfolio continued to decline, which reduced our bad debt reserve and accounts receivable balances. Third, portfolio-wide rent-to-income ratios remain consistent with history in the low 20% range. Employment and wage growth remain strong, and we have seen no evidence to date of residents choosing to double up. Fourth, traffic and applications remain above typical seasonal levels, allowing us to continue to push rate growth. Fifth, concessions are de minimis across our portfolio, with exceptions being one to two weeks on average in specific sub-markets of San Francisco, Washington, D.C., and Boston. Due to rising mortgage rates, renting an apartment is approximately 50% less expensive than owning a home versus 35% less expensive pre-COVID.
During the third quarter, only 7% of residents that moved out did so to purchase a home. This is the lowest level we have seen and is 35% lower compared to a year ago. In total, we believe demand for apartments remains broad-based. We continue to monitor the financial health of our residents for signs of potential distress across our portfolio. The U.S. consumer and our residents have proven resilient thus far, and we've yet to see any meaningful cracks in our forward demand indicators. Moving on to expenses. Quarterly same-store expenses rose 7.2% on a year-over-year basis. While this is higher than usual, our margin continues to expand as we operate a 70% plus margin business. Some of this expense growth was in our control, while the remainder was not. First, what was in our control.
We continued to push rent growth, which resulted in 450 more unit turns than a year ago. Positively, we re-leased these homes at 22% higher average effective rate or 900 basis points above our average renewal rate for the quarter. In addition, we regained 200 homes from long-term non-payers. Combined, this negatively impacted R&M and A&M during the quarter by $1.6 million, but should generate approximately $7 million in incremental revenue over the next 12 months. Had we not made these trades, our year-over-year same-store expense growth would have been approximately 5.7%. Utilities also contributed to our above-trend growth as energy costs increased. However, as we are typically reimbursed by residents for approximately 70% of this line item, same-store NOI was not meaningfully impacted. Next, what we cannot control.
Higher real estate taxes, which comprise 40% of all expenses, grew by over 5%. Pressure points consisted of Texas and Florida, where valuations increased, and New York City, where the burn-off of our 421-a abatement continues. Insurance, which is a relatively small expense for us, also increased dramatically due to higher premiums and claims. Looking ahead to the fourth quarter, we saw the return of typical seasonality in market rents after Labor Day. This factor, combined with our pricing strategy to drive rate growth, drove a quicker capture of our loss to lease. For October, blended lease rate growth is expected to be roughly 7%-8%, comprised of new lease rate growth of 4.5%-5% and renewals of approximately 10%.
For the fourth quarter, we expect blended lease rate growth to average 6%-7%, with a sequential deceleration due to toughening year-over-year comps. Taken together, we increased our full-year 2022 same-store revenue and NOI guidance ranges for the third time this year in conjunction with our release yesterday. We now expect to achieve 2022 same-store revenue and NOI growth of 11.5% and 14.4% at the midpoints on straight-line basis, or an increase of 50 basis points and 38 basis points respectively. Finally, we are continuing to drive forward on innovation with the intent of further expanding our 325 basis point controllable operating margin advantage versus peers. Initiatives underway are expected to generate roughly $40 million in incremental NOI by year-end 2025 and will be increasingly focused on revenue upside versus expense controls.
These include, first, launching building-wide Wi-Fi that allows whole building connectivity, a seamless setup at move-in for new residents, and enhanced control over smart hubs to reduce energy consumption and improve Scope 3 emissions. UDR has made a capital investment in equipment which provides improved economics and more control over the scope of the project versus traditional bulk deals. We believe this initiative could generate more than $20 million in incremental NOI once fully rolled out by 2025. Second, leveraging advanced resident leads and virtual leasing technology to better generate qualified leads and track prospects, optimize marketing activities, close leases faster, and enhance real-time pricing. Third, simplifying our move-in process to reduce vacant days while simultaneously offering a better tool to sell other income initiatives, such as renters insurance, parking, and storage, thereby increasing our share of wallet.
Fourth, improving our dynamic work order scheduling through enhanced vendor management tools, which should reduce vacant days through the turn process while improving asset management to better assess the repair versus replace decision. Fifth, expanding the number of communities we are able to operate without dedicated on-site personnel from 25 today to 35 over the next 12 months. This approach, whereby leasing and resident service activity is conducted virtually, improves our margin and helps mitigate inflationary costs. To date, we have increased the number of apartment homes managed per associate by 60% versus pre-COVID levels. Last, a special thanks goes out to all our teams for their ongoing dedication, but especially our teams in Tampa and Orlando.
Natural disasters, especially those of the magnitude of Hurricane Ian, are unpredictable, and I applaud your round-the-clock efforts to safeguard our communities, protect our residents, and return our properties to normal operations. Now, I'll turn the call over to Joe.
Thank you Mike topics I will cover today include our third quarter results and our updated outlook for full year 2022, a summary of recent transactions and the capital markets activity, and a balance sheet and liquidity update. Our third quarter FFO as adjusted per share of $0.60 achieved the high end of our previously provided guidance range and was driven by strong same-store revenue growth and further accretion from our 2021 acquisitions. For the fourth quarter, our FFOA per share guidance range is $0.60-$0.62, or a 2% sequential and 13% year-over-year increase at the midpoint. This is supported by continued strength in sequential same-store NOI growth, partially offset by increased interest expense given rising rates. These same drivers led us to increase our full year 2022 FFOA per share and same-store guidance ranges for the third time this year.
We now anticipate full year FFOA per share of $2.32-$2.34, with the $2.33 midpoint representing a $0.02 or 1% increase versus our prior full year guidance and a 16% increase versus full year 2021. The guidance increase is driven by an approximately $0.02 benefit from improved NOI and an approximately $0.005 benefit from lower G&A, offset by approximately $0.005 of higher interest expense. Next, the transactions and capital markets update. First, in alignment with our shift towards a capital-light strategy earlier in 2022, our third quarter external growth consisted solely of the previously announced $102 million DCP investment into our portfolio of stabilized communities at an 8% return. Because recapitalizations of stabilized assets have lower risk profiles, this is a relatively lower return versus our typical DCP investment.
We funded this investment with $100 million of proceeds from the settlement of approximately 1.8 million shares under our previously announced forward equity agreements. Next, during and subsequent to the quarter, we repurchased a total of 1.2 million common shares at a weighted average price of $41.14 per share for a total consideration of approximately $49 million. These buybacks were executed at an average discount to consensus NAV of 24% and a high 5% implied cap rate, representing a very accretive use of capital. Finally, during the quarter, we entered into an agreement to sell one community in Orange County, California, for approximately $42 million. This transaction is scheduled to close during the fourth quarter.
Speaking more broadly to the transaction market, pricing on the majority of multifamily transactions suggests cap rates are priced 75-100 basis points higher than at the beginning of the year, depending on market and asset quality. However, volume has been lighter than expected, so additional price discovery is needed. All told, the ongoing volatility in the macro environment and an elevated cost of capital relative to earlier in 2022 keep us selective in our capital deployment. We are fortunate to have a variety of external growth levers we can continue to pull to create value and drive earnings accretion. Finally, our investment grade balance sheet remains liquid and fully capable of funding our capital needs.
Some highlights include first, we have only $115 million of consolidated debt or approximately 0.5% of enterprise value scheduled to mature through 2024 after excluding amounts on our credit facilities in 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 3.1%. Second, we have $1.1 billion of liquidity as of September 30, which is comprised of approximately $900 million of capacity on our line of credit and nearly $200 million of unsettled forward equity agreements, providing us ample dry powder and strength. Third, our leverage metrics continued to improve.
Debt to enterprise value was just 29% at quarter end, while net debt to EBITDAre was 6x, down more than a full turn from 7.1x a year ago. We expect year-end debt to EBITDAre and fixed charge coverage will further improve to the mid-5x range given our capital external growth strategy and continued NOI growth. By year-end 2022, both metrics should be approximately half a turn better versus pre-COVID levels. Last, our approximately $370 million of developments in lease-up have been a drag on 2022 earnings, but are expected to benefit future earnings by approximately $0.05 per share based on a 6.5% weighted average stabilized yield. Stabilization of these developments should improve our run rate EBITDAre and further enhance our leverage metrics.
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.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. As a reminder, we ask that you please limit to one question and one follow-up. 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 poll for questions. Our first question comes from Nick Joseph with Citi. Please proceed with your question.
Thanks Joe you talked about the cost of capital changing, leverage trending down and the buybacks in the quarter and I guess in October as well. Stock's a bit below kind of the average cost you've been acquiring at. What's the appetite and how would you think about funding additional share buybacks from here?
Hey Nick thanks for the question. Yeah, we did pivot a little bit as we moved throughout the year, obviously. With the equity issuance back at the end of 1Q up in the high 50s. As cost of capital has changed and price discovery has been occurring, we pivoted over and shifted some of our development plans back into next year and then obviously shifted to the buyback. At this point in time, I wouldn't say there is a set dollar target that we are going after. We do really like the economics in terms of discount to NAV, the implied cap up in kind of the high fives and a pretty compelling IRR on that purchase.
We're going to continue to monitor what's going on in the macro environment, what's taking place with our cost of capital and the price of the stock, what's going on with sources and uses. I would say sources and uses in a pretty phenomenal place at this point, given we still have almost 200 of equity available from that issuance in March, plus a disposition that we mentioned here that should close in the fourth quarter, then free cash flow against a relatively small development commitment schedule. We have the capacity, so we're going to continue to monitor those factors, but no set targets today.
Thanks. That's helpful. Just on the DCP program, how do you monitor the credit profile? Obviously there was the default in the supplemental, but are there any changes or indications of additional stress in that portfolio?
Hey Nick this is Andrew. We regularly interact with our different partners throughout the process. You know, we're getting regular reports from them. We have third-party consultants during the construction period, and so, you know, we're regularly interacting with them. As it relates to 1532, we think this is unique to our DCP portfolio. It was the perfect storm. We had an early bankruptcy with one of the key subs, followed by delays by other subs, as well as COVID, which caused a two-year delay of the delivery of that building. Between the delay and the COVID impacts, it added to the cost of the building and resulted in the senior loan interest and the pref accrual eating through the equity and the economics of the deal for the developer.
When the senior loan finally matured, we were in a situation where the developer was unable to refi due to the lower NOI, which resulted in the default. Then we stepped in per the terms of the agreement and bought the loan from the bank. We initiated foreclosure. You know, the building leased up during a high obviously concessionary environment. Obviously, rents fell a lot in San Francisco. It's one of the markets that was probably impacted the most by COVID. Overall, you know, we feel comfortable with the portfolio. It's very diversified across all our DCP investments.
It's laddered, it's across the country, and we see this as a one-off circumstance, driven by you know delays by the development of the building and the COVID market of San Francisco. To date, we've done 27 deals over the last nine years for almost $900 million.
We've monetized 12 of those for about $400 million, with a weighted average unlevered IRR of 11%-12%. We've had great success, and we've been doing it for a long time.
Thank you.
Our next question comes from the line of Steve Sakwa with Evercore.
Thanks. Good morning. I guess maybe I wanted to start with Mike on just operations. You know, it sounds like you're still, you know, pushing pretty hard on rent increases and, you know, occupancy has been very strong. Just trying to get your thoughts on kind of some of the looming dark clouds and potential slowdown and reduction in job growth. I guess, how do you think about a potential pivot and, you know, what are the sort of early warning signs you'd be looking to, you know, take your foot off the gas on rent increases and focus more on occupancy?
Hey, Steve. That's a great question. You're right, we've been focused on this for a while now. You put us in 2Q, 3Q, really driving our blended rate as we move forward, where you're going to see a little bit more of the same going on. Rent renewal increases are going on that 9%-10% range through December at this point. They feel like they're sticking. We're not seeing a lot of negotiations at this point. The leverage will be on the mark-to-rent side, and we'll see where that shakes out. To your point on kind of those warning signs, I said in my prepared remarks, we see a lot of green lights still today. The one thing we're watching that's outside of that is just the cancels and denials.
We have seen that increase a little bit, and that's one of those warning signs that we'll watch closely. Again, we're seeing occupancy in that 96.5%-97% range. We feel comfortable about pushing right now, and we think that we have more tailwinds as we go into next year with that.
Okay. Maybe one for Joe on just thinking about, you know, cost of capital changing. Obviously, stock prices are down, bond yields are up significantly. I'm just wondering, how much have you changed your development hurdles, you know, on new deals that you might put a shovel in the ground on? Maybe, you know, I guess, how difficult is it to get a new deal to pencil in today's market?
Yeah, I think there's still quite a bit of unknowns out there, obviously, with price discovery taking place. You know, kind of in the prepared remarks, talked about cap rates being up maybe 75-100 basis points up into that plus or minus high fours range. That's kind of what we're hearing today, but obviously, transaction volumes are off fairly materially. I think we're still gonna go through a period of time here. We get price discovery, and we really need that to settle out before we can start to look at development in terms of that typical 150 ± basis point spread that we need. At this point, I wouldn't say we've pegged a required hurdle for development. We need the price discovery on transactions first.
What we have done is, you've heard us talk about about a $185 million development in Northern Virginia throughout the year. That's a densification play. That was supposed to start here in the third quarter, but we've delayed the start of that pending evaluating cost of capital, price discovery, et c. I can't say that we have a hurdle today other than we want to see where prices settle out.
Great. That's it. Thanks.
Thank you.
Our next question is from Austin Wurschmidt with KeyBanc Capital Markets.
Great. Thanks, guys. In the three markets that you're seeing concessions, I guess how broad-based are those? Is there anything that concerns you like, you know, slowing traffic, rising vacancy, etc. , that would lead you to expect that concessions could increase further, in those locations as we move later into the year or even, you know, into early next year?
Not as of right now, Austin. Those same markets are the ones we've mentioned previously. We've seen anywhere from one to two weeks on average across the board there. It hasn't really grown, and it hasn't shrunk. Again, occupancy is still in a great place. Traffic still coming into those markets and our blended growth rate, as you see in the supplement, still very high in those markets.
Got it. Tom, maybe for you. I mean, you referenced the difficult macro backdrop that we're operating in, and you guys have a really diversified portfolio across various regions and price points, sub-market locations, et c. I'm just curious what segments of the portfolio you're most concerned about, you know, in the current environment. Just any thoughts there would be appreciated.
Yeah. Austin, appreciate the question. You know, when I was referring to macro, we tend to look at it in two lenses. One, what's happening on Main Street with our residents. Mike alluded earlier, we're not seeing any cracks. In fact, we have a very healthy resident profile. No diminution, if you will, of their credit, their quality, their payment patterns, their doubling up, all of that. So Main Street seems very strong. When you look at Mike's blends in October, a 10 and a 5 on new and renewal is. I would have taken that in my 30-year career, 29 years, that would be a great number. So that side of the equation is really strong, and we'll see how it really plays out, and that's gonna depend on employment. We feel good about the employment picture looking down the horizon.
With respect to the macro environment, the capital markets, you know, obviously the feds, the banks, everyone's trying to push down inflation with every tool they've got in the box, and they're going to succeed. They're raising the cost of capital. You see our stock price, you see any other lending situation all being challenged by that. That's out of our control. Participate in that market, observe it, and it influences us. We don't know where it's going. Will rates continue to rise? Will they plateau? Will they succeed in bringing down inflation? That's gonna be a lot of 2023 as our dialogue on every one of the calls, every investor meeting will be, what is the capital markets environment? It feels like a capital markets recession. Is it going to be shallow or is it going to be deep?
How long is it gonna run? No one really knows. I mean, that is a case that will influence our capital light program, but I think we've positioned ourselves well there, and it will create opportunities. How do we pivot to those opportunities when they present themselves? We tend to think about what we control, what we interact with, and what opportunities we can generate. You see it in our operating numbers, really strong. Expect those to continue, and we'll wait and see what cracks occur.
Appreciate the thoughts.
Our next question comes from the line of Nicholas Yulico with Scotiabank. Please proceed with your question.
Yeah. This is Daniel Tricarico with Nick. Good afternoon. Question on your renter profile. Do you have a high level or regional level breakdown of your tenants by occupation? You know, whether that's tech, finance, professional or other services? Any differences between your West Coast, East Coast and Sun Belt tenants.
You know, Dan, we don't have that. I don't have it in front of me. Obviously, when somebody comes in, we get an idea of where they're coming from, but we don't have that at an aggregated level at the market in front of me today.
What you can say is our average resident's 34-35 years old, you know, so well in their career, probably have some financial acumen and capability to manage their expenses. Income level's what?
$150,000.
You know, that's not 10 years ago when we're renting to 25-year-olds right out of college, and they're making $60. They seem to be very durable during this. Still, when you look at banks and the information they're giving about spending, savings, credit, that part of our resident profile looks pretty strong.
Appreciate it, Tom. Thanks, guys.
Our next question comes from the line of Jeff Spector with Bank of America.
Great. Thank you. Good afternoon. I just wanna confirm first, are you seeing any price sensitivity in any of your markets?
Hey, Jeff. I think when you think about the price sensitivity, first and foremost, what we're seeing is seasonality. You still have market rents that are above last year's levels. Sure, in some markets, submarkets, you have some cracks here and there, and that's where we see some of these concessions popping up. For the most part, it's been pretty strong. I'll tell you kind of fast-forwarding, looking at 4Q versus 3Q, I do see a little bit more of a decel, if you will, in the Sun Belt, and it's just coming off of obviously very high numbers, still going to be very strong. The Coast right now, loss to lease a little bit higher. Market rents are a little bit higher. Maybe a bit of a tailwind, if you will, going into next year.
Great. Thank you. Then one follow-up for Joe on your comment on cap rates up 75-100 basis points. Again, appreciate the comment that, you know, we need more transactions for price discovery. I guess, where do you think values are then? You know, where? How much are values down, do you think, let's say, versus, you know, peak pricing at the beginning of the year?
Yeah. Versus peak pricing, you're probably off 10%-20%. It's gonna really depend on which type of asset and market, right? There were some more high-flying markets that got very compressed from a cap rate perspective, really based off forward growth potential, so more the Sun Belt markets that have probably come off a little bit more. You also have more of the B and C kind of levered asset play that's come off a little bit more. Then you have some unique circumstances where maybe you have in-place debt that's assumable, where that asset price hasn't moved as much. I think 10%-20% for the time being is a fair range to utilize.
Great. Thank you.
Thanks, Jeff.
Our next question comes on the line of Brad Heffern with RBC Capital Markets.
Hey, everybody. Appreciate some of the detail you gave on the 1532 default already. I was just curious, it's a little difficult to tell exactly what the outcome is with that asset. Is this still sort of a good outcome from the standpoint of you're able to buy the loan at a discount and you're sort of getting access to this building below replacement cost, or can you walk me through any of the math on how you expect that to turn out?
Yeah. Just a little bit on the process first, Brad, just in terms of the outcome, because the outcome isn't necessarily certain yet, right? We've purchased a senior loan. We intend to move forward with the foreclosure process, but that's expected in 1Q 2023. The outcome isn't necessarily certain. What I would say is that from an economics perspective, you know, when you look at replacement costs for this asset, our basis is probably ±$87 million, which equates to about $640 at the door. Yeah, replacement cost is well in excess of $100 given development cost today, so up in probably the $800 ± range. Relative to replacement cost, very good outcome.
From a yield perspective, the yield on our cash basis is probably in the mid-fours, based off that basis. On a fully accrued basis, including the accrued pref, somewhere in the mid-threes. I'd say that the submarket rents here still 10%+ below where they're at pre-COVID, so we still think there's room to run on that front. You have a market with quite a bit of decrease in supply coming at you, so less supply pressures going forward. Then you're just coming through the lease-up phase, so we got to burn off a lot of those concessions. There should be pretty good growth on a go-forward basis.
Okay. Thanks for that. Sorry if I missed this. Did you guys give a lost lease figure?
We did not. Right now, you can tell obviously with our strategy, it's been our intention all along to try to drive this down, right? Right now we're sitting in that low to mid-single digits. Again, this can fluctuate quite a bit over the next couple of months. Again, our intention is to continue to drive this down, obviously build our earn in for next year. You can see it in our blends today. You're gonna see more of that as we move forward.
Yeah. Brad, this is Tom. I would emphasize and tie a couple things together. I mean, Mike's done a fabulous job with respect to capturing the market rent that's there, and you can see it in our numbers on a sequential basis with four, almost 5% revenue growth. Second, no diminution in the occupancy. He's just trying to roll the rent roll up as strong as possible for 2023. When you walk into 2023 and say 5% already booked, we feel like we're in a really good, strong position into that 2023 window of no issues with the resident. Issues in the capital markets, yes.
Okay. Thank you. Our next question comes to the line of Adam Kramer with Morgan Stanley.
Hey, guys. Appreciate the question. Just wanted to first ask, you know, one of your peers put out kind of a 2% market rent growth forecast for 2023. Recognizing you guys clearly aren't guiding here, but would love to just kinda hear your thoughts about that 2% rent growth forecast for 2023. You know, obviously, you guys have different markets than that peer. Would love to just maybe hear your thoughts about kind of that number and how that kind of seems given your portfolio.
I think all we can really speak to is what we're seeing today. I think to that last question on what are we seeing from blends and a loss to lease and our earn in perspective, it covered part of it. I think what's important too is that the decrease in blends is not coming from a decrease in underlying market rents. We've seen market rents continue to increase on a year-over-year basis, commensurate with historical averages. Historical averages being typically you'd see market rents grow 3%-4% throughout the year. Recent trends and the strength of the consumer tells us that that could continue.
Now, if you go into a recession, maybe you see a lower number, but I think Mike's gonna continue to try to capture every dollar he can on that and try to drive that loss to lease lower and those blends higher. In the interim, we're gonna continue to focus on the innovation side. I think there's a lot that we can do there from a share of wallet or other income perspective, as well as what we're doing on vacant days and pricing engine to hopefully drive some above peer relative growth. I think it's too early to start talking 2023 forecast, but that gives you some of the building blocks that we see today.
No, that's great. Really helpful. Just on the occupancy side, you know, I recognize and appreciate kind of the transparency I think you guys have had in your strategy in kind of talking openly about, you know, willing to sacrifice a little bit of occupancy to kind of maximize same store revenue growth. You know, look at 30 basis points kind of occupancy decline quarter-over-quarter. Would love to just kind of hear, you know, I guess kind of how much occupancy loss is too much, right? Or kind of when does that strategy about kind of maximizing same store rev in lieu of occupancy, when does that strategy maybe kind of shift, right?
What would kind of be a maybe not an occupancy floor, but it kind of cause you to maybe shift and maximize occupancy a little bit more?
Sure. I think if you look at it and you think about the fourth quarter, obviously we have lower lease expirations. Right now we have a little bit more ability to push it back up. We got as low as around 96.6%-96.7%. I think you'll see us hover between that 96.7%-97% going forward through the fourth quarter, and we'll have pricing power with that. Once you start going below 96.5% for us, it may cause a little bit of a pressure point, so we're trying to avoid that. That being said, it's how you get there, right? The way we think about it is our vacant days.
If we're a little bit more efficient on how we turn the units and moving people in faster, it shouldn't really come at a cost on the rent side of the equation.
Mike, how much of your occupancy relates to the long-term evictions and that, the 700 going down to?
Yeah, that's a great point, Tom. You've heard us talk about some of the long-term delinquents in the past. We were upwards of around 750 of them. Now we're closer to about 450. Historically speaking, we run between 200 and 250. We're about halfway to where we need to be, less than 1%.
The benefit?
Yeah, benefit over time. We made a comment in the press release about an increase in our collection expectations, so we picked that up about 15 basis points relative to prior expectations. Continue to trend in the mid 98%, collected relative to billed revenue. Historical averages were 50 basis points of bad debt, so there's 100 basis points total to go after. I think realistically, we're looking at maybe half of that as a possibility given some of the rules and regulations that have been put in place by different municipalities, primarily on the coast.
Thanks. Thanks for all the color. Really appreciate it.
Our next question comes from the line of John Pawlowski with Green Street.
Thanks. Andrew, I wanted to go back to your opening comments on the DCP program. Just trying to get a sense for the strain and the debt service coverage across the rest of the DCP book. Could you give us a sense in terms of the watch list of ongoing projects if rates stay where they are today or even inch up a little bit, are there gonna be other shoes to drop?
Hey, John. I think it's too early to say at this point. Andrew mentioned the well-laddered maturity profile that we have within these deals. There's only a couple of deals coming up to maturity in the next 12 months. Over the next couple of quarters, we'll see how they approach the disposition versus refi process. I know they will probably kick that off in the next quarter or two, and so we'll wait and see how that develops. Right now I can say nothing in default. The way we originally underwrite these, we make sure that we underwrite in a stress scenario in terms of asset value as well as coverage ratios to make sure to account for some variability. Obviously, rates today much higher than where they're at 12 months ago.
I think six months from now, we could be in a very different environment as well. All I can kind of speak to today is no issues today, and we'll continue to monitor and work with the equity partners.
Okay. Just in terms of broader market trends, in terms of inbound deal flow from people not able to line up, particularly on the recapitalization side, financing. Are you guys seeing a meaningful increase in inbound deal volume?
Yeah. Hey, John, it's Andrew. Yeah, we're definitely seeing an increase in the number of both developers looking to capitalize their deals as a result of lower proceeds from the bank and as well recapping completed development deals in the market. As you know, we've taken advantage of a few of those deals. Right now with our capital light, you know, we're doing a lot of review of those deals, but haven't put out any term sheets. We continue to be monitoring the market.
Okay, great. Last one for me. Apologies. Mike, just quickly, 3.5% new lease growth in Seattle, anything unusual this quarter or has that market become a lot softer?
John, that's a good question. I don't think it's become that much softer, but we're also inflated with our exposure there. I can tell you Bellevue still feels very strong for us. The one thing that does stand out is we had some shorter term kind of interns that were leaving the market. We had a little bit more exposure over the last 30-45 days, and we've since repriced those. I think some of that's just a short-term to long-term lease phenomenon. The market today for us feels pretty good.
Thanks for the time.
Our next question comes from the line of Chandni Luthra with Goldman Sachs.
Hi. Thank you for taking my question. As we think about the back half you know, your back half expenses and compare that to what you provided in September, how much of the delta from that update would you say was a surprise?
It was probably we had talked about being above 5% in the back half of the year. Yeah, we were above 7% here in the quarter. I think when we get into 4Q, we'll be back into that 5% ± range. You're kind of talking about 6% blend versus our prior commentary above 5%.
That's right.
You're really looking at about 1%, probably half that being more surprise. Some of that's due to the success we're having from both eviction process and moving out some of those long-term delinquents. That's been driving up some of our turnover as well as the cost to turn those units. In addition, you got higher utilities and R&M coming through. A little bit, probably half of that was a surprise.
Yeah. I would say just to size that, you have about $100 million in the quarter in expenses. One percent, it's only $1 million for us. Some of it, frankly, was just surprises on the insurance side. We do still have some claims on that side of the house as well, but $1 million is equal to 1%.
Chandni, this is Toomey. I appreciate the question. My perspective on this is it's actually a good thing. Why? Because I'm getting 200+ units that were zero income to me. That's $6 million a year. I got those units back during the quarter in a window that I could lease them at, and the cost was $1 million in higher repairs and maintenance type aspect of it. It's a pleasant surprise for us to spend $1 million, turn the unit, and turn them back into $6 million revenue for next year. I'll make that trade every day. I've told Mike, just keep pressing. We'd like to get that delinquent number down. Joe mentioned the long-term impact towards our AR reserve aspect. It's a win situation for us. I know a lot of people go, oh, expenses and inflation.
Yes, we are fighting those, but I think the innovation that we have has a lot of avenues to beat the cost structure and hold it and contain it. We do operate in a 75% margin business. It is more about the revenue potential of the organization and how we unleash that than all the expense containment aspects of it.
Very helpful. Appreciate that detail. As a follow-up, you know, if you could provide any color in terms of what you're seeing from a supply standpoint, you know, in your coastal markets versus Sun Belt markets. Are there any markets that worry you more, any specific geographies? That would be very helpful.
I think as we look out to 2023 and beyond, a couple of comments. Twenty twenty-three, clearly a better line of sight. I would say, broadly speaking, more concerned when you get into the Sun Belt markets. Sun Belt, depending on the market you're looking at, you could see growth in supply upwards of 30+% . Somewhere above 3%+ of stock in a number of those markets, be it, you know, the Austins, Nashville, Charlotte, Phoenix, some of those markets. Definitely some concerns related to that. On the West Coast, we do see supply starting to come down. Some of the markets like Northern California, I think supply comes down quite a bit. Out on the East Coast, New York seems to be coming down on a forward basis.
Near term, a little bit of an increased supply, although I would say our submarkets generally are about half of the overall market supply expectations. Feeling a little bit better there. I think when you get into the 2024 and 2025 picture, we do expect to start to see some of that supply come down. Given the financing market that exists today, the unknowns around where cap rates settle out, and of course, cost inflation that we continue to see, we are seeing a lot of developers struggle to line up additional financing or equity partners to start new transactions. We'd expect over the next six to 12 months to start to see starts come down quite a bit. 2024, 2025 probably start to get a little bit better story on that front.
Thank you. Appreciate the detail.
Our next question comes from the line of Wes Golladay with Baird.
Hey, everyone. I just have a more of a macro question. Probably wanna look at Tom's 30 years of experience. What we're seeing with a lot of the tech stocks, you know, a lot of the stock comp is not being what it was supposed to be. Would you expect any pressure to filter through with maybe a lag as we look into next year?
Boy, that's why I'm in the apartment business. It's a little bit simpler than trying to figure out the mapping of that type of dynamic. What I will tell you is I've gone through the tech wreck. What we have is a completely different environment with respect to technology. We're seeing a decade of everybody trying to figure out how to automate their businesses, and so I think that will continue. Those strong companies that are the core of the tech industry are amazingly strong and resilient. I don't see, and I look at our experience for hiring tech people, they're going to find jobs and be paid very well. So I don't see that part of the exposure. I do worry a little bit about the home building aspect, the construction and the financing markets, weathering a capital markets type recession.
We've looked through our employment base, excuse me, our resident base, and I think Mike's taken that into account when he's looking at his pricing and looking for cracks in that. Hard for us to extrapolate the broader employment picture into our portfolio. All we can try to do is sit around the room as we do each week and say, "Where do we think this thing's cracking? Do we see anything?" To be very, very transparent. We see no cracks in our residents in any shape or form at this time.
Okay. Thank you for that. If we go back to the DCP, you do have that new arm where you do the recapitalization. You obviously know some of these assets very well. Would you participate in recap on your existing preferred equity loans if the developer did have some equity but not the full amount?
Yeah. I think we're always looking for opportunities to deploy capital creatively and on a risk-adjusted basis. If one of our existing equity partners comes to us and we like the economics and the risk, we'd absolutely participate on a go-forward basis with a recap, either within our existing position or to even more of a senior loan format. It's something we'd consider, but at this point in time, there's really nothing on the table that in terms of the upcoming maturities to speak to.
Great. Thanks so much.
To me, I would add a little color on that. I think Harry and Andrew have been very, very transparent and clear. We've always looked at the asset and said, "Boy, is it one close to ours? Is it an asset that makes sense someday? If it comes to market, we'd love to buy it." We will still continue to do that and believe that that is the right avenue to think about these. It's just another avenue of investing in real estate that we know.
Great. Thank you for that.
Our next question comes from the line of Juan Sanabria with BMO Capital Markets.
Hi. Thanks for the time. I'm curious on what the potential lead indicators looking back historically would be of seeing people begin to double up or get roommates. Just more broadly, thinking about some of the literature out there on how strong the housing market's been and the macro factors that have driven. Do you think that maybe we pulled forward some creation of households because of the pandemic and some of the unique dynamics there that maybe normalizes over the next couple of years here? What's your guys view on just general household creation?
Yeah. I think it's fair to say that pandemic did pull forward some of that household formation demand. It also pulled forward a little bit of a shift into single-family over multifamily. Single-family clearly had a tailwind at their back for the last 24 months relative to multi. That's part of the reason you have that pretty large disconnect between cost to own versus cost to rent. I think what we're seeing now today, and you definitely see it within our move-out stats, our move-outs to buy are down roughly 35%, going from kind of low double digits into mid to high single digits now at this point. We're seeing it in terms of our turnover stats. I think we are shifting back more towards a rentership society.
Homeownership rate should stay steady and/or come down, which obviously benefits us in terms of more demand from any incremental household formation. I think we're good on that front. That's one of the tailwinds we have going into next year. Just coming back to the consumer, I think you're talking about some of the warning signs of things we're looking at. When we see traffic still up 10% on a year-over-year basis, we see cash collections in the month continuing to improve, even here in October, and we're not dependent on government assistance on a go-forward basis. Those are residents that are actually paying that rent on time. Cash collections are looking better. You're not seeing the doubling up. Overall, really not seeing those cracks.
Ultimately, I think household formation probably benefits us on the rentership side a little bit more.
Just a quick follow-up on property taxes. Some surprises in some of your broader resi peers about what we're seeing in some of the Sun Belt markets. Any sense of what we could expect in 2023 given some of the appraisals will lag what's going on in home prices generally and what we should be thinking about?
Number one, we aren't necessarily immune to some of those surprises, but the diversification that we have in the portfolio obviously insulates us. When you look at some of the expense growth that we've had in our Sun Belt markets, that is being driven primarily in Florida and Texas by the real estate taxes increasing as well as seeing higher turnover in those markets. We're seeing it this year and still expect to see it next year. I think when we look at preliminary outlook for next year on real estate tax, we're looking at ±5% overall. That's gonna be lower when you go out to California with Proposition 13 and then go to the Mid-Atlantic and Northeast, where we expect kind of low- to mid-single digits.
When you get down into our Sun Belt markets, I think you're gonna be looking at high single digits to low double digits for markets like Florida and Texas and Nashville for us.
Thanks, Joe.
Thanks, Juan.
Our next question comes from the line of Haendel St. Juste with Mizuho. Please proceed with your question.
Hey, good morning out there. First, I guess, is a follow-up on bad debt. We've seen a number of your peers report an uptick in the third quarter from the bad debts taking a bit longer to resolve, but you guys saw an improvement here. I guess I'm curious what you're maybe seeing or doing differently. Are there any reasonable price point distinctions? Am I right to infer from your comments to an earlier question that you expect that improvement next year? Thanks.
Yep. I'll start in reverse on that one. We do expect improvement over time, going from the mid-98% ± collected on billed revenue. I can't say necessarily is that going to occur next year. I think on the margin it should because we are having success in whittling down those long-term delinquents. We've got a pretty active process on that. Of that excess kind of long-term delinquent we have today, I'd say 75% of them are somewhere in the eviction process, although eviction processes instead of being perhaps a 30- to 60-day, in some cases are more like four to six month. We think we will continue to whittle that down, and collections should improve and hopefully become more of a tailwind.
In terms of the bad debt statistics, yeah, I'd say sequentially within that 4.7% sequential revenue number, maybe a slight positive, i.e., 10-20 basis points, but not a big tailwind. Our collections are getting better in the quarter, in the month, but we don't really have that much volatility. I think we talked about it last quarter, the way we approach bad debt reserves. We do try to be pretty specific in terms of estimating what we think collections are ultimately gonna be on each resident. I think we've done a very good job of doing that. We've eliminated a lot of that volatility of when the cash comes in, it's a surprise, or when it doesn't, it's a surprise negative.
I think we've been pretty spot on in how we've been able to evaluate bad debt and forecast that.
Thanks. That's all I had.
Thank you.
Our next question comes from the line of Tayo Okusanya with Credit Suisse.
Hi. Yes, good morning out there. Just sticking to the world of technology, any update on kind of proptech initiatives at the company, in order to try to reduce operating expenses going forward, especially just kind of giving general operating expense headwinds?
Yeah. Thanks for the question. I think probably the biggest one and one we're most excited about is just becoming a little bit more efficient as it relates to maintenance. We do have some technology that's going into place here in the very near future. It does allow us a little bit more visibility into decisions around repair versus replace. It should allow us to turn the units a little bit quicker. We'll have more visibility into what our vendors are doing. They'll have more visibility into what we're doing. We think that we can compress our time that it takes to turn a unit just knowing when they're coming in, how we can schedule a little bit more efficiently, and again, driving down those vacant days. That's probably the biggest one.
Aside from that, just given what we've rolled out previously, and you've heard us talk about it, we have 25 properties today that are unmanned. We do plan on taking that closer to 35. Again, a lot of that has to do with some of the technology that we've already put in place.
Great. Thank you.
Of course.
Our next question comes from the line of Neil Malkin with Capital One Securities.
Thanks for keeping it going. I appreciate it. First one, Mike, you talked about, I think, $40 million by 2025. Looks like, you know, half of that is the whole building smart system Wi-Fi. But maybe can you talk about the other portions of that? What is the incremental, you know, of that? You know, if you're at zero today or at the beginning of this year, you know, what are you at the end of next year or 2024? You know, should we assume, like, some sort of steady ramp-up, or how do you see those things kind of playing out in terms of your operating performance?
That's a good question, Neal. I think what you're gonna see is first and foremost with the GiGstreem and the fact that we're rolling out the bulk internet, that is something that's going to take some time. We are currently rolling out about 10,000 apartment homes by the end of this year. We expect another 15,000 by the end of next year, and then the rest of the portfolio in 2024. It does take a little bit of time to start seeing that revenue roll through. We do expect that will be a run rate, $20 million when it's all said and done. That's the biggest one. Aside from that, I just spoke a little bit about some of the technology we're putting in place that'll help us with the efficiency around turns. That'll help out.
We're continuing to find ways to do a better job with our pricing. Obviously, going out there and creating more of those, buyers or shoppers, if you will. A lot of efforts going in there, and then obviously our customer experience project. We're very excited about that, the data that's gonna come from that, and then obviously where that transpires. A lot of that's gonna come in 2023 on the revenue side, followed up with 2024 with another chunk of that money coming out at us.
Neil, just the size of the numbers real quick for you. Of that $40 million associated with those over 60 projects, we've got about $6 million of that in the 2022 number that we've already been able to realize through the initiatives that we started over the last 12, 18 months. I think as you fast-forward into 2023, be anywhere from $5 million to upwards of $10+ million, depending on some issues with the supply chain around our bulk internet rollout, as well as some other constraints, but we're moving as quick as we can there. Gives you a range there, and then in 2024 and 2025, you'll capture the rest of that number.
Yeah. You're saying another four to five to 10 potentially in 2023, right? Is that what you're saying?
Correct. Yep, that's correct.
Okay. All right. Yeah. Last one, I guess maybe Tom or really whoever. You know, a lot of supply coming in the Sun Belt, whatever, and that's been happening forever. Demand's killing it, so I'm sure it'll be fine. But to that end, because there is a lot of supply that's gonna be coming and the debt market is uncertain, particularly more onerous terms for permanent financing, you know, I'm sure you guys are well aware of that. Do you see that as a potential opportunity to broaden your diversification or broaden your Sun Belt exposure?
I'll take a cut at it. One, there's a lot there to assume and adjust for. What will stabilize mortgage rates and proceeds stabilize out at? How much is that supply replacement cost and exposure towards the future? So I think it's gonna be continue to monitor, see what comes to the market, how it prices out. You know, the days of 3.5 caps in the Sun Belt don't seem on the horizon anytime soon. They've moved up. We'll look, and as Joe has articulated many times and very well, we'll monitor our cost of capital and look for accretive opportunities. If they present themselves in the Sun Belt, that's great. If they present themselves somewhere else, that's great too. We're just gonna go where the best risk-adjusted returns are. I think we'll keep playing that book.
It works well.
Yeah. I think, Neil, when you look at, you know, we've talked about predictive analytics in the past. It's pretty well diversified in terms of its buy-rated and sell-rated markets today, meaning, yeah, there's some Sun Belt markets, some East Coast and West Coast it likes, as well as the inverse. There's some markets in each one of those regions that it does not like. But as Tom said, cost of capital today is prohibitive in terms of deploying new. What we've done historically is obviously focus a lot more on that deal next door and what fits with our platform. As you think about near-term deployment, I'd say our top three priorities at this point, we talked about one of them already with the stock buyback, which is us buying into a diversified, stabilized portfolio.
The other two are really renovation, which you saw five additional renovations added to the portfolio. Doing lower risk, small dollar, solid return investments on that front. You get into innovation, which Mike touched on. We're definitely plowing a lot of personnel resources as well as capital dollars into that part of the business. I think that's the playbook for now to keep focusing on that. Hopefully, at some point, cost of capital comes back, and we can get back to external accretive growth.
That's helpful. Thank you, guys.
Thanks Neil.
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.
Let me begin by thanking all of you for your time and interest in UDR. I do wanna be respectful, I know you have other calls to follow after this. Let me reiterate, our strategy remains sound, and we will stick to it. We understand this current market environment has changed, and as you can see, we've pivoted our tactics to adjust to it. We're very bullish about the apartment business and what we can control and have very good transparency and are executing very well on that. We also recognize that the broader market has cycles and that those come and go.
You can see our tactics and our actions by refinancing the vast majority of our balance sheet at record low rates with very few maturities through 25, and that we have adjusted to a capital-light environment and accordingly are underwriting to present-day cost of capital and taking appropriate actions. With that, we do believe we have the right strategy and have a great outlook for the future, and we look forward to seeing many of you at NAREIT in a couple weeks. With that, take care.
This concludes today's conference. You may disconnect your lines at this time, and we thank you.