Greetings and welcome to the UDR First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Trent Trujillo. Please go ahead.

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 first quarter 2023 conference call. Presenting on the call with me today are President and Chief Financial Officer, Joe Fisher; and Senior Vice President of Operations, Mike Lacy, 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 started 2023 from a position of strength: steady demand from years of housing undersupply in the U.S., cycle-best relative affordability versus alternative housing options, and embedded same-store revenue growth that was three times higher than our historical average. Year-to-date results demonstrate this strength. Let me highlight those. One, our first quarter same-store revenue growth of nearly 10% and same-store NOI growth of almost 12% led to year-over-year FFOA per share growth of 9%; two, early second quarter trends across traffic, blended rate growth, and collections are in line with our expectations, reinforcing the confidence we have in our business and guidance; and three, our balance sheet is strong, and we continue to adhere to capital market signals with our capital-light strategy. Our investment-grade balance sheet and nearly $1 billion of liquidity provide safety during the potential downturn and afford the opportunity to grow the company should our cost of capital improve. Looking ahead, there remains a wide variety of economic scenarios that could play out, but UDR has excelled across a variety of environments over our 50-year history. Our strategy is built around diversification, prudent capital allocation decisions, and focusing on what we control to drive relative outperformance within the industry. These include; first, our leading operating platform continues to maximize the value of our communities and deliver a high level of resident satisfaction; second, innovation initiatives are again proving to be a differentiator versus peers and are a positive contributor to our growth profile in 2023 and beyond; and third, our diversified portfolio provides both safety and the ability to allocate capital across a variety of markets and investment opportunities that generate high risk-adjusted returns. Additionally, we benefit from favorable relative setups for the U.S. multifamily industry. Job and income growth have defied expectations and remain positive. Total housing supply is stable, and the level of future development starts has started to decline. And relative affordability versus single-family housing is as favorable as it's been in nearly my 22-year tenure at UDR. Taken together, I remain very optimistic on the relative strength of the multifamily industry and UDR's advantages within the industry. We have a strong culture, a talented team, with a robust track record of performance, and we continue to invest in our associates and additional technologies. We expect to improve our efficiency, expand our NOI margin, and create value for all UDR shareholders and stakeholders. In closing, I thank my fellow associates for your commitment to excellence and innovation, which I'm confident should continue to drive attractive absolute and relative results. With that, I'll turn the call over to Mike.

Thanks, Tom. The topics I will cover today include: our first quarter same-store results, early second quarter 2023 trends and how they factor into our reaffirmed full year 2023 same-store growth outlook, and an update on our continued innovation and operating efficiencies. To begin, strong year-over-year same-store revenue and NOI growth of 9.6% and 11.7% in the first quarter were driven by: first, blended lease rate growth of 3.5%, which was in line with our expectations and driven by above-average renewal rate growth of 7.4%; second, occupancy that held strong at 96.6% supported by healthy traffic; and third, rent collections continued to improve with March being our highest level of in-the-month collections since the beginning of COVID. During the quarter, we remained focused on enhancing our rent roll and recapturing apartment homes that were previously occupied by long-term delinquent residents. The short-term effect of our approach had three direct results: one, approximately 400 basis points of higher annualized turnover versus the prior year, although 39% annualized turnover is in line with our long-term first quarter average; two, increased repair and maintenance expenses; and three, higher levels of availability during a seasonally slow leasing period and therefore, a near-term drag on pricing. However, re-leasing these apartment homes to paying residents is beneficial to total revenue. Our efforts to date have reduced the number of long-term delinquent residents to approximately 300 or 50 basis points of total units, which is down from a peak of 750 and compares to our long-term average of 250. This in combination with better in-month collections helped to further reduce our bad debt reserve. Next, we continue to see favorable fundamental trends to start the second quarter. First, demand remains relatively healthy. Year-to-date job growth has been stronger than many had anticipated and traffic is roughly in line with the elevated levels we saw a year ago and well above the long-term average. Second, the financial health of our residents appears to be in good shape as wage inflation has largely kept pace with rent growth resulting in steady rent income levels in the low 20% range. In light of recent consumer spending habits and bank commentary, we continue to watch for signs of change, but affordability remains strong as only 10% of our first quarter move-outs were due to rent increases, which is down from roughly 18% at its peak during the middle of 2022. Furthermore, we have yet to see material evidence of residents choosing to double-up. Third, relative affordability remains in our favor. Renting an apartment is approximately 50% less expensive than owning a home versus 35% less expensive pre-COVID. Only 5% of move-outs in the first quarter were due to home purchase, which is roughly 60% less than our historical average. And last, concessions remain minimal and average approximately half a week on new leases across our portfolio. The concessions we have been offering remain primarily concentrated in certain submarkets of San Francisco, Washington D.C., and our Sunbelt markets, with the latter being a function of new supply being delivered to those areas. With this backdrop, second quarter blended lease rate growth is trending as expected and should average approximately 3%. New lease rate growth in April is approximately 50 basis points higher than March, though renewal rate has decelerated by 100 basis points. This convergence is in line with our expectations. Relating this to full-year 2023 guidance to achieve the 6.75% midpoint of our year-over-year same-store revenue growth guidance, full-year blended rate growth needs to approximate 2.5%. With first quarter blended rate growth of 3.5%, we need to average only 2% blends for the duration of the year. We believe blends are anchored by renewal rate growth, which even during past downturns was at least 2% on a trailing four-quarter average. In short, we remain confident in our ability to achieve the guidance we set in February. Turning to regional trends, on our last call, we anticipated that growth in our Sunbelt markets would continue to converge with the Coast and that Coast would have better growth results starting in mid-2023. That crossover occurred in the first quarter slightly ahead of our expectation. While traffic remains healthy across all of our markets, the level of new supply being delivered to certain Sunbelt markets has resulted in higher market-level concessions and has led to a pause in the ability to push new lease rate growth. Conversely, results and momentum in New York and Boston, which comprise roughly 18% of our same-store NOI, have been stronger than expected. Minimal levels of new supply and robust traffic led to 97% occupancy and portfolio-leading blended lease rate growth of more than 6% on average for these two markets in the first quarter. These divergent situations reinforce the value of a diversified portfolio across markets and price points. We will continue to take a balanced approach between rate and occupancy to maximize revenue and NOI. Finally, we are progressing with our various innovation initiatives, which will add to our bottom line in 2023 and beyond. Our high-margin revenue-focused and tech-enabling building-wide WiFi project is expected to be rolled out across approximately one-third of our portfolio by year-end and our entire portfolio by 2025. We are making inroads on various resident-specific initiatives as part of our customer experience project that will enhance satisfaction, reduce resident turnover, and drive greater pricing power. And we have advanced the integration of big data to enhance our pricing system. Over the past decade, our same-store growth results have benefited from approximately 50 basis point contribution from our unique initiatives. In this year, we expect the same. In closing, thanks to our teams for your passion in delivering best-in-class results to our residents and stakeholders. I'll now turn over the call to Joe.

Thank you, Mike. The topics I will cover today include our first quarter results, a summary of recent transactions and capital markets activity, and the balance sheet and liquidity update. Our first quarter FFO as adjusted per share of $0.60 achieved the midpoint of our previously provided guidance range and was supported by strong year-over-year same-store NOI growth. The slight sequential decline was driven by a higher average share count from the settlement of forward equity agreements at the end of the fourth quarter and higher interest expense, partially offset by incremental NOI from recently completed development communities. Included in our first quarter results was a $3.7 million one-time expense benefit due to a refundable payroll tax credit related to the employee retention credit program, which was previously contemplated in our original guidance expectations. Looking ahead, our second quarter FFOA per share guidance range is $0.60 to $0.62, or an approximately 7% year-over-year increase at the midpoint. The 2% sequential increase is driven by a combination of higher NOI from same-store, joint venture, and recently developed communities. Year-to-date results are in line with our initial expectations, and we have reaffirmed our full-year 2023 same-store growth and FFOA per share guidance ranges. Next, a transactions and capital markets update. First, in alignment with our shift towards a capital-light strategy in mid-2022, we made no acquisitions, no new DCP investments, and no new development starts during the first quarter. Second, during the quarter, we completed construction of a $145 million 300-apartment home community in Washington D.C. With this, our current development pipeline consists of just two communities totaling 415 homes at a budgeted cost of $188 million, with 40% of this cost already incurred, thereby limiting our forward funding commitments. And third, during the quarter, we achieved stabilization on two development communities, totaling 605 apartment homes for a cost of $142 million at a blended stabilized yield of approximately 7%. We also continued the successful lease-up at our three other recently completed development communities, which have an expected weighted average stabilized yield in the high fives. Finally, our investment-grade balance sheet remains liquid and fully capable of funding our capital needs. Some highlights include: first, we have only $113 million of consolidated debt or approximately 0.5% of enterprise value scheduled to mature through 2024 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 3.25%. Second, we have nearly $1 billion of liquidity as of March 31. And third, our leverage metrics remain strong. Debt to enterprise value was just 29% at quarter-end, while net debt to EBITDA was 5.7 times, down nearly a full turn from 6.4 times a year ago and 0.5 turn better versus pre-COVID levels. We expect these metrics to improve further throughout 2023. In all, our balance sheet remains in excellent shape. Our liquidity position is strong. We remain selective in our capital deployment with balanced forward sources and uses, and we continue to utilize a variety of capital allocation competitive advantages to drive earnings accretion. With that, I will open it up for Q&A.

Thank you. We will now be conducting a question-and-answer session. Your first question comes from Eric Wolfe with Citi. Please go ahead.

Thanks, good afternoon. We get a lot of questions from investors on how supply is going to impact the Sunbelt later this year just that there's more cumulative impact from all the supply delivering. I guess, as you look at your markets and project forward, do you see the Sunbelt diverging from the coastal markets later this year, or do you think things will just keep trending together?

Hey Eric, it's Joe. Maybe I'll kick it off and then kick it over to Mike to talk about some of the trends we're seeing down there. But we've talked about seeing a pretty decent increase in supply as it comes to the Sunbelt. I do think our portfolio is a little bit more insulated when you look at supply growth within our submarkets. We have a little bit more of a B quality and suburban price point down there, so a little bit more insulation. But overall I think Sunbelt for us has seen about 3.5% of stock. And so while demand has held up relatively well in recent years, depending on the macro outlook, if that does start to fade a little bit, you probably have a little bit more risk there as supply comes on. So Mike can probably give you a little bit more on what we're seeing down there.

Yes. Thanks, Joe. Eric, specific to current trends, I mentioned in my prepared remarks we are seeing concessions start to pick up a little bit in the Sunbelt. That being said, we're not offering much there. Occupancy is still strong in that 96.5% range and we expect that we'll be able to continue to push rents as traffic continues to increase on a month-over-month basis moving into the season.

That's helpful. And then unrelated question, but you're always thought of as being forward-thinking on the technology front. And to that end, I was just wondering if you'd consider using your platform to help manage the back office of other companies' portfolios like one of your peers announced recently.

Eric, it's Joe. It's a good question and a good thought. But I'd say when you look at our innovation, we've talked a lot about the 60-plus initiatives that we have out there right now that we're focused on, $40-plus million that we think will come in at a run rate here in the next couple of years. So for us, I think staying focused on what we can control, what's going to benefit the consolidated portfolio today and keep rolling out those initiatives is what we want to stay laser-focused on for the time being.

Okay. Thank you.

Next question comes from Jeff Spector with Bank of America. Please go ahead.

Hi, good afternoon. Thank you. Just taking a step back again, it's pretty amazing the quarter you've had. We've been talking about this recession coming for over a year now, and then just some of your comments on latest conditions and the health of the tenant. I guess from your seat on this recession, how are you thinking about this, just big picture? And is it possible that apartments or UDR's portfolio could be more resilient than what we've seen in the past during recessions? In particular, we're seeing a lot of white-collar job layoffs.

Yes, Jeff, this is Toomey. With respect to a recession, I mean, I think they're all different shapes, forms and how you get out of them are quite a puzzle to solve through history. But this one strikes me as a capital markets recession, brought on by policy, lending patterns, capital flows. And so that's kind of unusual. Usually, it's followed by a rapid employment outlook change, and we're just not seeing it. You've seen the first three months of the year, probably four, all have positive job growth, which is a big driver of our business. So, it feels like to us a capital markets recession, not impacting the jobs that severely. If it does, it's going to be localized, and we'll adjust accordingly. But it doesn't feel like the normal type of recession that has a heavy employment-based downturn.

Thanks, Tom. And then, if I can ask and I apologize if I missed this, did you discuss how April leasing rates are doing so far, what you're seeing in April in various markets?

Jeff, let me take that. And I think it's important to just give you a few other points. As we think about April, and I want to reiterate, we're on track with our initial guidance. The year is playing out as we expected as a whole. Again, we've said this before, guidance assumed 2.5% blends for the year. With our 3.5% in the first quarter, we only need that 2% for the remainder of the year, so just to kind of put that in perspective. As far as regions go, the East Coast is still doing extremely well. We're seeing occupancy in that 97% range, blends in the 6% range in both New York and Boston. And then the West Coast, right now is basically in line with our expectations, so we feel pretty good about the West Coast. Right now, the Sunbelt is a little bit weaker than we would have expected. Still seeing pretty strong blends coming out of that part of the country, but that's a little bit off from what we originally had for our plan for the year. As far as April goes though, it looks a lot like the first quarter. Our blends are in that 3.5% range. We're seeing new lease growth continue to increase month-over-month. Our occupancy is in that 96.6% range, which is comparable to what we had in the first quarter. Traffic is picking up based on seasonality, kind of where we expected. And we're sitting right now with fewer long-term delinquents than we've had in a very long time. So, we feel pretty good about where our occupancy is today going into the season.

Great. Thank you.

Next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

I was curious, Mike, which markets experienced the most significant month-over-month improvement in new lease pricing from April to March? Also, regarding New York, how long do you believe the momentum you observed will continue compared to its performance in the first quarter?

Sure. Thanks for the question, Austin. We're still seeing the most growth on the East Coast. In New York, it's coming down a bit from the highs of 18% to 20% blends, but we're still seeing 6% to 8% today. It's probably the strongest month-over-month performance so far, followed by Boston and D.C., which are also starting to pick up. The other markets are mostly in line with where we were in March. I believe New York has some room for growth, and there’s still a lot of traffic coming to that market. There aren't any concessions, and with occupancy near 98%, we feel confident about continuing to make progress.

That's very helpful color. And then as it relates to potential joint venture, I guess, what's the latest update around the interest from potential partners and timing of announcements? I guess has there been any change in sort of your initial expectation on pricing as it relates to just contributing those assets?

Hey, Austin, it's Joe. Yes, first off, I would say, obviously, we've got a great partner in MetLife. It's been a very good long-term partner that we continue to work well with, so no change on that front. Strategically, as we think about joint venture capital, I think we've talked about it in the past on these calls and with investors. I think we've proven out over the last couple of years that we have a value creation mechanism in terms of the operational platform and its ability to add excess NOI margin to new acquisitions. So, we've proven that out utilizing our own equity when that's available and priced right. However, being a public company, we don't always have that capability. So, a joint venture would allow us the opportunity to be in the market throughout the cycle to utilize dry powder sourced through a JV through a seed capital, which would come at fairly efficient pricing and be able to go out there and transact in this market and then go lift NOI and cash flow growth. So, it does a number of things for us. You get the cash flow growth on the assets, you get fee streams that enhance the incremental ROE on each dollar that we deploy. You're getting scale along the way, as long as we continue to buy that deal next door and keep helping both the consolidated and JV portfolio. So, overall, still strategically have a desire to do that. We continue to advance discussions on that. No update at this time. But on the pricing front, I think pricing today plus or minus 5% cap rates is kind of where the market has settled in. So I would hope to, if we do have something, be able to source capital at that level.

Great. Thanks for the time.

Next question Tony Paolone with JPMorgan. Please, go ahead.

Yes. Thanks. So just following up on that, because I think you just mentioned cap rates maybe in the 5s. I think last quarter you said maybe the bid/ask was something in the high 4s to mid-5s. And so, just wondering if you can talk a bit more about just what you're seeing out there in the transaction market and what your crystal ball looks like on how that evolves over the balance of the year.

Hey, Tony, it's Andrew. How are you doing? I'll take that one. In general, as Joe said, we remain focused on a capital-light strategy at this point. We are having a lot of conversations and staying connected to the market, underwriting a number of deals. I think pricing is definitely more in that 5% to 5.25% range today. With us focusing on platform and the deal next door, if and when we get back in the market, will be our focus. We will be able to utilize the benefits of our platform that have been discussed where we can add value from acquiring from other owners and operators and to layer on Mike's team and the platform that we've created.

Okay. Nice. And then, just second one on the DCP book, I guess, somewhat related to allocating capital. I mean, what's the comfort level and desire to kind of keep it at this level versus either seeing more opportunities out there to do more, or even get paid back on what you have?

Yes, it's a good question. I guess, as with everything within kind of our diversified platform, it's all things in moderation. So as a percentage of enterprise, we're about 2% of enterprise value within the DCP book. We've talked about a willingness to take that a little bit higher from kind of that $0.5 billion type of number. We have had actually JV discussions around that as well. We think that's an area that could be an opportunity for us to source alternative forms of capital and help expand that book and the ROE on those investments, but also not increase our exposure too materially. So it's an area that we're looking at today. I would say that the book of business available or the pipeline has come off quite a bit. You've seen a lot with, obviously, the regional banks pulling back on overall construction lending. You've seen it become more difficult to line up equity partners for new developments. And so, our DCP book being a byproduct of that has pulled back. And so, a little bit less of a pipeline today that, for DCP deployment, not necessarily a near-term positive, but I think for overall fundamentals and the $1.6 billion of revenue we have, clearly a positive when you start thinking about a smaller supply pipeline going into the second half of 2024 and into 2025.

Okay. Thank you.

Your next question comes from Jamie Feldman with Wells Fargo. Please go ahead.

Great. Thank you. Can you talk more about what you're seeing in terms of urban versus suburban performance and the A versus B assets across the different markets?

Sure. Specific to the Bs, we actually have seen a little bit more outperformance. So I would say thinking about blends, probably 70 to 100 basis points more on the Bs today than the As. Occupancy has been relatively stable around that 96.5% to 96.7% for both A and B, so not a big difference there. So I'd say right now the price point on Bs is a little bit stronger and that's kind of what we expected for the year.

And then what about your urban assets versus your suburban assets?

Urban's still doing a little bit better, and I would point specifically to places like Boston, D.C. for us today as well as SoMa in San Francisco. Those parts of those markets are doing a little bit better than some of the things on the outskirts. It's not materially different, but urban is a little bit stronger. We do expect that some of the suburban starts to bounce back midyear this year and probably converge to some degree.

Okay. Thank you. And then for my second question, what would you say is the key downside risk in terms of your same-store expense guidance whether it's taxes, insurance, or R&M? And where do you feel like you have the least visibility right now?

We feel pretty good in terms of taxes and insurance today. I would tell you more on the controllable front just with what we've seen with turnover. You have a little bit of pressure on R&M. That being said, I think we've done a really good job with putting in place our technology around maintenance. We just rolled that out about three weeks ago across the entire portfolio. So we think we've got some things that can help mitigate expenses going forward there. We are starting to roll out more of those unmanned properties as we move into the season here so that will help mitigate on personnel expense. And A&M costs typically go with turnover, so if you have more evictions, skips, things of that nature, you could have more attorney fees. But it's minimal. So I'd tell you right now turnover to some degree, but we do believe we have it mitigated.

Yeah. And just to follow-up on that, Jamie, a couple of comments. We've been asked a few times about the cadence of expenses. So if you go back to 2022, the first half of the year was about 4% growth, second half 7%. So we're actually coming up on easier comps when we go into the second half of the year. A lot of that was driven by, one, it was very difficult to place personnel in the first half of 2022 given the labor environment, so we had a lot more open positions that we're comping against here in the first part of the year. In response to that, we did do a lot of midyear raises throughout the portfolio and so we'll be anniversarying against that by the time we get to the second half. Mike mentioned the turnover piece, and we started to have more success with long-term delinquents in the second half of the year last year as well as definitely here in the first quarter and I think second quarter, so we'll start to see hopefully that mitigate to some degree. And then Mike mentioned the real estate tax insurance piece. Real estate taxes today we generally know about 70% of that number for the year at this point, so don't expect a lot of volatility there. And on the insurance side, we do our renewal in mid-December. So premiums are relatively locked in here for most of the rest of the year at kind of a 20-plus percent number. The claims can be volatile. Claims making up about 50% of the insurance number. And so that's why you see insurance in the first quarter actually being down on a year-over-year basis. Premiums were up, but claims were down 30-plus percent as 2021 and '22 were both running at pretty significantly elevated levels relative to history. So we're starting to see that come back to a more normal run rate.

Okay. Very helpful. Thank you very much. Thanks, guys.

Thanks, Jamie.

Next question Adam Kramer with Morgan Stanley. Please go ahead.

Thank you for the question. I wanted to discuss capital allocation in light of the capital-light strategy or the shift mentioned earlier. Your presentation included a strong chart demonstrating your ability over time to issue equity when trading above NAV and sell assets to repurchase shares when at a discount. I'm curious about your thoughts on buybacks in this context, especially since it wasn’t mentioned in the supplemental. How are you viewing buybacks in the current environment and at current levels?

Yes. So clearly, we've been active in the past on buybacks. We did some in the second half of last year. We've done some in the previous years when we get to discount. So I'd say last year was a relatively easier decision given that we had previously issued equity on a forward basis in the first half of 2022 up in the high-50s. You had an identified source of capital at a very compelling price, i.e., roughly a 4% cap, and we're able to buy back stock in the high 5s. If you fast forward to where we're at today, we are in a capital-light strategy. Sources and uses are relatively balanced with a relatively light forward development and debt commitments in terms of maturities. So, I feel good on sources and uses. I think we do need to figure out where we would find and where we would price that additional source today if we did want to do a buyback. We talked earlier on the call about exploring joint venture capital. That could potentially create some dry powder for us to deploy and do both operating assets, DCP, and potentially buyback. So that would be part of that discussion if and when we ultimately source some capital there. But right now, sticking to the capital-light strategy, it's something that we'll consider, but nothing there in the first quarter.

Great. That's super helpful. And just maybe switching gears thinking about affordability. Maybe just talk a little bit about that. I know you guys have had some really good numbers in your slide deck historically. Maybe just whether it's the latest moving data on affordability there, and maybe even tech tenants or tech employed tenant exposure, is there any numbers around that you're able to quantify? I think that would be helpful as well.

Yeah, I'll start and Joe, you can clean me up here. But from what we're seeing, one thing I would point to is just on the affordability aspect, people aren't moving out to buy homes. We are seeing right around 5% moving out to do so. That typically runs around 12%, so we're just not seeing much on that front. In terms of people leaving because of rent increases, that is around 10% today, significantly down from mid-last year when we were around 18%. And so we're starting to see that come down to some degree as well. Not seeing people double-up. We always talk about how many people are in our units, still right around 1.8, and we're not seeing people transfer down to smaller units. So, right now, it feels pretty good. Joe, anything you'd add to that?

No.

Great. Thank you guys.

Next question, Chandni Luthra with Goldman Sachs. Please go ahead.

Hi. Good morning, good afternoon. Thank you for taking my question. You gave us some thoughts on the Sunbelt. You talked about the East Coast. Could you perhaps throw some color on the West Coast, particularly markets like San Francisco and Seattle? What are you seeing in these markets from a pricing standpoint and then from a concession standpoint? Like did things get worse in the last two months? Thanks.

It's a good question. I've received a few of those lately. I'd tell you again the West Coast feels pretty much in line with what we expected. I'll break it down a little bit for you starting with the Pacific Northwest. Seattle for us, we're not really utilizing any concessions. That being said, market rents have been a little bit weaker than we expected going into the year. Market rents are starting to pick up as of late and our occupancy is still in that 96.5% range. So Seattle feels good. I think specific to some of our submarkets, Everett and Kirkland, places like that, we saw around 10% to 11% growth. So we're seeing a little bit more strength out in the suburbs. Bellevue today still relatively strong, no concessions, about 5% to 6% growth. So that's the landscape of Seattle. In terms of San Francisco, SoMa is still doing really well for us. We saw almost 14% growth during the quarter and we're still seeing about a two-week concession. That seems pretty average. We've had two weeks for about 18 months now, and it’s just kind of par for the course, if you will. When you start to go down the peninsula, not really offering concessions today. Occupancy is in that 96%, 97% range. And we're still seeing pretty decent blends. So traffic is starting to pick up in San Francisco. Down along the SoCal, if you will, LA has been very strong for us. This is a 3.5% NOI market, so relatively small, and our exposure is mainly limited to Marina del Rey. We've had a lot of success there. Occupancy is in that 97% range, no concessions to speak of, and market rents continue to move up. So I feel pretty good about LA. And then Orange County's been just steady as it goes, occupancy 96% to 97%, no concessions. Market rents continue to improve as we move into the seasonal part of the year. So right now, SoCal feels pretty good for us.

Great. And as a follow-up, could you discuss how the impact of eviction moratoriums ending in LA has played out for you? Like what portion of delinquent tenants paid back all their past dues in full? What portion just decided to give back keys and leave? What's the ultimate upside? And how do you think about any near-term headwind to vacancy from this dynamic?

Hey, Chandni, it's Chris. I can help you out with that. So when the county eviction moratorium went away at the end of March, we had about 70 long-term delinquents in the portfolio. Once again, as Mike said, it's a pretty small market; it was 3.5% of NOI. But of those 70, about 40 came in and paid us right away as far as April rents. They still have a balance that's due but they paid us April rent. Probably two to three people came in, paid April rent, and paid off their entire balance. The remainder of them are either under eviction, served a payer quit notice, something like that. So we're working through that process right now.

Yeah. And just maybe some higher-level comments, as it relates to the rest of the portfolio. Just a reminder overall, we guided to mid-98% collected for 2023, which is pretty consistent with where we're at in 2022. I'd say we're seeing minimal variability at this point in time to that number. So don't see any downside, really don't see a lot of upside. Over time, we can probably get back to maybe a 99% collected for the portfolio. But going back to the mid-99s, where we used to run is going to be exceedingly difficult just given eviction diversion programs in a lot of our portfolio. So somewhere in the mid-98s is where we're at. We did have a little bit higher write-offs than expected in the first quarter as we've had really good success getting some of those long-term delinquents out of the portfolio. We thought that would have taken a little bit longer throughout this year. So while it was a little bit of a drag on both sequential and year-over-year revenue growth, we do think it's a tailwind as we go through the rest of this year on both sequential and year-over-year as we keep moving throughout the year on that front. Overall feeling really good; I mean when you look at collections in the month, as well as in April, March and April are running much higher than they were in 2022 in terms of in-the-month collections. Between collections getting better, getting new residents in, and also as we have some of these eviction moratoriums coming off and converting formerly non-paying residents back to paying. We feel really good about where we're tracking in terms of guidance and the bad debt number.

Thank you to both.

Next question Juan Sanabria with BMO Capital Markets. Please go ahead.

All right. Thanks for the time. Just on the investment side, notwithstanding your capital-light strategy today, and maybe the cost of capital not where you want it exactly, but curious what markets would look the best. With your kind of forward-thinking data analytic approach, sometimes it's a bit contrarian. Just curious, as you look out a couple of years, where you see the best opportunities across your opportunity set.

Yeah. Hey, Juan, it's Joe. I mean, I guess number one, the area that we always have the most conviction is the transaction down the street. If we can find another property nearby, no matter what market, there are so many efficiencies to gain out of that and additional scale to gain out of that. So we're never going to redline certain markets. We'll always be looking for deal next door. Beyond that, if we did have a source of capital that was compelling today, there are markets in every region that look good. If you go down into the Sunbelt, I'd say Dallas looks more compelling to us. Even Nashville, even though it has headwinds today from a longer-term perspective, you're seeing permit activity come off really dramatically in Nashville at this point in time. There are a couple of Sunbelt markets that we like. Out East, Philly's really been on a tear here recently in terms of market rent growth and continues to screen well for us as does D.C. and Boston from a longer-term perspective. Then out West, you look at maybe suburban San Diego. There’s interest in Northern California that actually screens well from a quant perspective but you really got to pick and choose your points given the regulatory environment there and certain municipalities. That one is a little bit more challenging on the regulatory front. But overall, there are a lot of areas that we can pick and choose from. That's one of the benefits of being diversified. So if we do have a cost of capital or source of capital that's compelling, that's kind of where we'll look.

Thanks for that. And then just on renewals, you mentioned kind of the spread blew out between the new and the renewal spreads over the quarter. Just curious on how we should think about that for the balance of 2023, maybe just how you're thinking about that in your own budget and where the May and June renewals have gone out at present.

Yeah. Great question. What we're sending out today basically through June at this point is in that 5.5% to 6% range. We expect it to stabilize in that range probably over the next few months, maybe come down in that 5% to 6% going forward. And then new lease growth continues to move up on a month-over-month basis. So obviously that spread will continue to compress.

Thank you very much.

Next question Michael Goldsmith with UBS. Please go ahead.

Good afternoon. Thanks for taking my question. Mike, in your opening remarks, you described traffic as in line with last year but also commented that demand is relatively healthy. So does that imply that conversion is lower or something else is weighing on demand despite similar traffic?

That's a good catch. We have seen some of those conversion numbers come down a little bit just with some of the affordability that's down in the Sunbelt. So more cancels and denials. And it's really a product of people searching the market getting an understanding of what's there for new supply and what concessions are being offered. So at times we do have more people canceling. But we're still netting out where we need to be. And obviously with our occupancy in that 96.5% to 96.7% range, we're still holding where we need to be. So feel pretty good about it.

Got it. And then Tom, in your opening remarks you talked about that the geographic diversity of your portfolio allows you to allocate capital in the markets that are most advantageous. You've kind of shifted to this balance sheet-light strategy where your active development pipeline includes Dallas and Tampa. So should we interpret that as these are the markets where you see the most opportunity? Thanks.

Yes, I'll kick it back to Joe. I think Joe highlighted it very earlier in the Q&A with respect to we're always going to look for the deal next door where we can achieve a high level of efficiency and in some cases, as Mike has done, actually operate assets with no one on-site. So whether that's Tampa or Dallas, I think then we go to Chris and his analytics of where we think rents are trending with respect to the next four and 10 years, and that's our targeting aspect of it. The good news, as Joe also mentioned, is we're in 21 markets today, so that gives us a broad range of looking at where we can accretively deploy capital at any given time. The capital-light strategy is a reflection of where we currently trade with respect to our stock price and where we think assets would trade. So when that's not there, we turn to our other value creation mechanisms. You've seen us highlight those over the years from operations, innovation, to DCP, to redevelopment, which is probably gaining more steam in our mind these days as we see stabilization and growth prospects in these markets return or accelerate in some cases.

Thank you very much.

Next question Nick Yulico with Scotiabank. Please go ahead.

This is Dan Tricarico with Nick. First question, Mike, you may have said new lease rates in the Sunbelt have been a bit weaker. So I'm curious if you could expect a relative softness there in relation to how you view the occupancy rent trade-offs entering the peak season.

Yes Dan. Again, we're still seeing healthy growth in the Sunbelt. It's just a little bit off from our original expectations. And we have seen market rents start to move up over the last three or four weeks there. So on a month-over-month basis, it continues to improve. It's just a little bit off from, again, what we said originally going into the year.

Sure. Okay. And then I guess switching to the other Coast. So in your Northern California and Seattle portfolios, do you have a sense of what percentage of your tenants are employed by tech or big tech companies? And have you seen any increase in move-outs citing job loss as the reason, or do you think there's been sufficient rehiring to mitigate that given the job market strength that you quoted?

Yes. No, we watch that very closely and we're still right around 13% to 15% exposure in both San Francisco and Seattle as a whole. We haven't seen a lot of people come in and drop off keys because of job-related events. We continue to see in-migration in those areas. So again, it's not a lot of our exposure today and not seeing a lot of issues if you will.

Hey, Dan, it's Joe. Maybe a couple of things to add to that too. Just I know those two markets get a lot of focus given some of the headlines around the tech layoffs. But a number of individuals that are on this call have done some pretty extensive analysis on the warrant notices. We do our own analysis as well on that. Typically, you see maybe about 20% of those notices actually reside within California and Washington for those tech layoffs. So, it is pretty well dispersed around the country. I think when you look at our blended lease rate activity in those two markets, both of those markets actually saw acceleration from Q4 into Q1, so I think it gives you a sense that the layoffs are pretty diversified. Supply is actually coming down in Northern California. From what we're seeing on the ground, we're actually seeing pretty good traction.

Great. Thank you.

Next question, Anthony Powell with Barclays. Please go ahead.

Hi, good morning. I had a question around I think the April lease spreads again, which I think you mentioned a few times. So in the first quarter, you had blended spreads of 3.5%. I believe in the prepared remarks, you talked about Q2 being closer to 3%. But in a Q&A question, I believe you said 3.5% for April. So I wanted to make sure all those numbers were correct and maybe kind of tie them up.

Sure. The Q2, when we've referenced 3%, that is anchored towards our initial guidance. So, it's still early in the quarter. Again, April looks a lot like Q1. It all will hinge on what's going on with new lease growth. So, again, if we're sending out 5.5% to 6% renewals through the remainder of Q2, expect to see a little bit of improvement in new growth going into May and then we'll have to see what June has to offer. But today, things are trending slightly better than that.

Got it. Thank you. And maybe on affordability, I think you've mentioned a few times that people aren't moving out to buy homes. It's more affordable to rent now and that fewer of your tenants are reporting affordability as an issue. That suggests that there's actually more pricing power than you're taking advantage of. So I'm curious if you agree with that. And maybe what's preventing you from pushing more on rent given the favorable trends you talked about?

I think that's where you see the spread between renewals and new leases. We are taking advantage of it today and we have been probably in the last 18 months or so. Typically, we're sending out renewals about $100 to $130 over market. And so that's why you have basically a 5% spread between new lease and renewals today. So we feel like we're aggressively pricing that but also trying to keep in mind retention is a key factor for us and obviously helps drive new lease growth as well.

Fine. Thank you.

The next question, Alan Peterson with Green Street. Please go ahead.

Thanks, Mike. In terms of your proactiveness in using concessions in San Francisco, can you share what other markets you're needing to be proactive in using concessions? And are you expecting to use concessions over the balance of the year to maintain this mid-96% occupancy level?

Yes, Alan. What I would tell you, it's been kind of more of the same. Similar again, in April we're seeing similar trends. We're still offering concessions in those pockets. It's in San Francisco, parts of D.C., and it's extremely minimal in cases down in the Sunbelt. Right now what I would tell you, April, again, looks very similar. I don't expect that we're going to go up more than call it a week per new lease and going forward into the season. Demand is still strong. We still have plenty of visits coming to the property. We're going to continue to balance that. I don't expect concessions to be much of a drag on us.

Appreciate that. And then maybe just shifting over to the DCP portfolio. For the deals that are maturing within the next 12 to 18 months, are you guys seeing any weakness on lease-up, or are your development partners concerned about refinancing the more senior portion of those debt and construction loans?

Yeah. Hey, Alan, just I'll give some context on that. I mean, I think you're right to focus on the near term. We get questions on this leading up to the call as well as last night, kind of trying to understand if there's any stress in the system. I'd say number one, as mentioned earlier, it's only 2% of enterprise value. When you look at Attachment 11b, clearly fairly well diversified, not just by market but also maturity schedule. We've got a couple of questions on the capital stack, so I'll kind of address that here as a part of your question. If you look at the overall capital stack for our DCP book, I'm going to kick out the portfolio recap deal as well as the Portland deals, which we're also operating recaps; so a little bit different risk profile. Just looking at more of the development deals, we've got about a $1.6 billion cost for that development portfolio. There's about $950 million of senior loan, so call it 60% loan to cost. Our commitment was about $350 million on those deals, so 60% to 80%, and then you had about $300 million of equity behind us. A pretty good amount of equity sitting behind us on all those transactions. When you focus on these upcoming maturities, you got one in Philly, Santa Monica, and Oakland. Those are about $360 million of total cost. When you look at the capital stack within those, you've got a senior loan that's about $215 million. You've got a commitment from UDR for the portion of about $90 million, and we had about $55 million of equity originally behind us on those. Now we've continued to accrue up our interest income, so our basis today on an accrual basis is a little bit higher than that initial, but still a pretty sufficient equity behind us. So at this point in time, yeah, we haven't taken any impairments on those. We are, of course, starting to have the discussions with our equity partners as well as lenders, trying to think through what their plan is in terms of do they want to restructure, do they want to exit through a sale, or do they simply want to extend with the senior and see what happens on a go-forward basis. So, no stress to speak of right now, but not to say it won't develop over time, depending on where refi rates are and fundamentals.

Thanks for all those comments, Joe. Super helpful.

Thanks, Alan.

Next question, Flora Tong with Evercore ISI. Please go ahead.

Good afternoon. Thanks for taking my question. I guess the acquisition volume remains unchanged at zero. And I wonder if you're seeing more distressed opportunities coming into the market. And separately, are you seeing a big slowdown in new starts or planned starts from maybe some of the competitors and the merchant builders? Thanks.

Hello, Flora. To clarify the situation regarding distressed opportunities, there are two key areas to consider: distressed pricing and distressed equity partners. Regarding distressed pricing, I would say there isn't any. Sellers who are prepared to align with the market at around a 5% cap rate are not considered distressed sellers. It's not feasible to purchase properties at a 6% cap rate in a 5% cap rate environment. If sellers are agreeable to market terms in the multifamily sector, which is experiencing strong capital flows, it remains a favorable asset class. Additionally, government-sponsored enterprises are still lending in the high 4% range, so we don't anticipate seeing distressed pricing. However, you may encounter equity deals from merchants who may have misjudged their underwriting or financing, but this doesn't necessarily translate to distressed pricing. Therefore, I don't expect that to happen. Regarding the future pipeline and supply trends, we are observing some declines in starts and permit activity for multifamily projects, which have decreased by about 5% to 10% from the peaks in 2022. If we look at the overall housing supply, the single-family sector has seen a decrease of over 30%, leading to a total housing supply reduction of around 20%. We are beginning to notice the effects of these changes, but any substantial impact is likely not to manifest until the latter half of 2024 and into 2025, which is still some time away. Additionally, in our DCP pipeline, we are seeing a significant drop in new deals, indicating that due to the challenges in the regional banking sector and equity raising, there will likely be far fewer new starts moving forward. We believe this will be a future advantage for us.

Flora, this is Toomey. Just one thing to add to your calculus when you're thinking about this, the multifamily industry enjoys the benefit and partnership with the GSEs, which provide a stable capital flow that helps the transaction market continue to flow, the refi market continue to flow. There’s not this historical just everything has to be sold, and there's no capital, so it's vulture time if you will that occurs in the multifamily industry as long as we have the GSE. It's a unique animal for us and very beneficial through periods like this as I mentioned earlier, capital markets recession.

Thanks. That's really helpful. And maybe shifting to the technology, I know UDR has been fairly active on the innovation front. Have you seen any opportunity associated with artificial intelligence such as ChatGPT or other language model that can help UDR create further technology efficiencies going forward?

We have seen that. We've actually rolled out AI chat text and call across the portfolio over the last 12 months. And so that's already being utilized throughout our portfolio. There are going to be additional opportunities that we think going forward. We've already started to kind of sketching those out in terms of how to provide the customer kind of individualized responses, how to give them more automated responses but feel like they are addressing their specific questions they understand their specific history, what their issues could be. So there's definitely going to be an opportunity for that in terms of the customer experience and providing them a better customer experience but also from a cost perspective, how to bring our cost structure down. So we are looking at it; I think it's pretty early days other than what we've done on the AI chat side.

And Flora just one data point. Toomey again, with respect to the AI chat piece, surprisingly enough it closes better than we thought it would. It's about a 10% higher closing rate on our sales than we've seen through a natural call center-type template. So customers are embracing it, so it must be working.

Great. Thanks. That’s all from me.

Next question Alexander Goldfarb with Piper Sandler. Please go ahead.

Hi. Thank you. Good morning. So just really quick two quickies. First, Joe, on the insurance front, is there opportunity for you guys to increase the amount that you self-insure to try and mitigate some of the large premium increases or some of the carriers or reinsurers pulling back?

Yes, Alex, good question. That's actually an analysis we go through every single year looking at every single layer, how the layers are being filled in and how pricing is relative to loss history. Each year, we go through that analysis. I think with capacity having pulled back in the space and despite premiums going higher, it really hasn't returned. Some of the profit margins that these insurers are taking are pretty substantial relative to loss history. So it's one of the advantages of obviously being a pretty large, diversified company that's well capitalized relative to being a private operator that may not have that capability and has to just take on that premium increase. So it's something we'll be looking at.

Okay. And then the second question, just quickly, you guys mentioned the Sunbelt being weaker, but you also mentioned that your B portfolio isn't really being impacted by the supply. So just sort of curious if that was sort of a relative because the East Coast is performing better than you thought, maybe you expected better out of the Sunbelt or if you're just saying more Sunbelt broadly but not really about your assets in particular?

Alex, I think it does go back to East Coast just doing better in general. Where we are seeing pockets of weakness, it's more in those urban settings in the Sunbelt because that's where the supply is coming from. That's why the Bs are outperforming a little bit more down there than we would have expected going into the year.

Awesome. Thank you.

Thanks, Alex.

Next question Tayo Okusanya with Credit Suisse. Please go ahead.

Yes. Good afternoon. Actually, my questions have been answered. I just couldn't figure out how to get off the queue. Thanks.

Thanks, Tayo.

I would now like to turn the floor over to Tom Toomey for closing remarks.

This is Tom again and thank you all for your time, interest, and support of UDR. We've established ourselves as a full-cycle investment that delivers above-average growth and total shareholder return across a variety of macro environments. We remain very enthusiastic about the apartment business and believe our operating capital allocation and innovation advantages should deliver relative outperformance versus peers in 2023 and beyond. And with that we look forward to seeing many of you at the NAREIT conference in June as well as upcoming individual events. With that, take care.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.