UDR Inc

NYSE:UDR

Earnings Call Transcript 2024-Q1

[Operator]

Greetings, and welcome to UDR's First Quarter 2024 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Vice President of Investor Relations, Trent Trujillo. Thank you. Mr. Trujillo, you may begin.

[Trent Trujillo, executive]

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 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 1 plus a follow-up. Management will be available after the call for your questions that did not get answered on the call today.

I will now turn the call over to UDR's Chairman and CEO, Tom Toomey.

[Tom Toomey, executive]

Thank you, Trent, and welcome to UDR's First Quarter 2024 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; Senior Officers, Andrew Cantor; and Chris Van Ens will also be available during the Q&A at the end of the call.

2024 is off to a very solid start. Due to better fundamental backdrop than initially expected and the operating strategies we continue to employ to outgrow competitors in our markets. Positive fundamental drivers for industry include: first, year-to-date employment creation of approximately 800,000 jobs has already exceeded initial full year economist consensus growth expectations.

Second, more than 100,000 newly delivered apartment homes were absorbed during the first quarter. The strongest first quarter in over 2 decades. Adding to that, total housing deliveries remained stable and development starts continue to decline. This bodes well for rent growth in the years ahead. And third, renting an apartment is on average 60% more affordable than owning a single-family home in the markets where we operate. A cycle best level of relative affordability.

These trends, combined with the operating tactics we utilize have led to positive momentum across all key operating metrics. This includes more robust traffic, higher leasing activity, lower turnover, lower concessions, higher occupancy and better pricing power than originally expected. In all, this translates to what I would characterize as green sprouts. Mike will provide additional details in his remarks.

However, as we only have completed the first 4 months of the year, we remain wary of the volatile and elevated interest rate environment and the effect it may have on pricing and concessions of lease up communities, given the heightened new supply the industry faces in 2024. We feel good about 2024 thus far, but we would like to see more evidence of continued operating momentum as we progress through a peak leasing season before revisiting our full year guidance.

Big picture, I remain optimistic on the long-term growth prospects of the multifamily industry and UDR's unique competitive advantages that should enhance that growth. We have a strong culture, a talented team with a robust track record of performance, and we continue to invest in our associates and embrace technology to create value for all of UDR stakeholders.

Finally, I'd like to take a moment to celebrate the upcoming retirement of Senior Vice President and Chief Investment Officer, Harry Alcock who will soon be transitioning to a consulting role with a focus on sourcing transactions. Harry and I have worked together for approximately 30 years, and he has been a trusted partner through all of it. He helped UDR grow to be a thriving $20 billion enterprise we are today while also grooming our next wave of talented investment and development professionals. Harry, thank you for all you have done and we all look forward to working with you in your new role.

With that, I will turn the call over to Mike.

[Michael Lacy, executive]

Thanks, Tom. Today, I'll cover the following topics. Our first quarter same-store results, early second quarter 2024 trends and how they factor into our full year 2024 same-store growth guidance. An update on our various innovation initiatives and expectations for operating trends across our regions.

To begin, first quarter year-over-year same-store revenue and NOI growth of 3.1% and 1.2%, respectively, and 0.4% sequential same-store revenue growth were slightly above our expectations. These results were driven by: first, 0.8% blended lease rate growth, which resulted from nearly 4% renewal rate growth and new lease rate growth of negative 2.5%. New lease rate growth improved 260 basis points versus fourth quarter results as concessions decreased by approximately half of a week on average.

Second, 35% annualized resident [ turn ] was 400 basis points better than the prior year. The 630 basis point delta between new and renewal rate growth when combined with higher retention led to a favorable outcome. And third, occupancy remained strong at 97.1%, supported by healthy traffic and leasing volume.

New York, Washington, D.C., San Francisco and Seattle, which collectively constitute 36% of our same-store pool for standouts, averaging nearly 98% during the quarter.

Shifting to expenses. Year-over-year same-store expense growth of 7.5% in the first quarter was in line with our expectations and inflated by a tough comp against the onetime $3.7 million payroll tax credit we recorded and disclosed in the first quarter of 2023. After excluding this credit, our year-over-year same-store expense growth would have been a more reasonable 4%.

Moving on, strong core operating trends have continued into the second quarter and every key revenue metric is exceeding our expectations through the first 4 months of the year. First, blended lease rate growth continued to accelerate from approximately 1% in March to roughly 2% in April, with concessions stabilizing at lower levels than the fourth quarter of 2023. All regions have demonstrated sequential blended lease rate growth improvement versus March. With our West Coast and mid-Atlantic regions showing the most strength at approximately 3.5%.

Based on current trends, we expect May blended lease rate growth to demonstrate further sequential improvement.

Second, resident retention continues to compare well against historical norms. Due in part to our customer experience project, which I will touch on later, April retention is 400 basis points above prior year levels, representing the 12th consecutive month our year-over-year turnover has improved.

Third, occupancy is holding firm in the high 96% range. Strong demand from continued job and wage growth has allowed us to simultaneously operate with high occupancy and push rental rate while maintaining rent income levels in the low 20% range.

And fourth, other income continued to grow at approximately 10% in April, similar to what we achieved in the first quarter. As a reminder, other income constitutes roughly 10% of our total revenue. We remain pleased with the trajectory of our other income initiatives such as the rollout and penetration of building-wide WiFi, which contributes significantly to incremental same-store revenue growth.

Looking ahead, we reaffirmed our full year 2024 same-store growth guidance in conjunction with our release. We are encouraged by the strength of macroeconomic indicators, such as year-to-date job growth and wage growth and the effect those demand drivers have had on our key performance indicators thus far. But we remain somewhat cautious given the volatile and elevated interest rate environment combined with peak supply deliveries yet to come.

Turning to regional trends. Our coastal results have been above our expectations, while Sunbelt markets are in line and trending better. More specifically, the East Coast, which comprises approximately 40% of our NOI, was our strongest region in the first quarter. Boston, Washington, D.C. and New York all performed well with weighted average occupancy of 97.5%.

Blended lease rate growth was nearly 2.5%, and same-store revenue growth was 4.25%, which is slightly above the high end of our full year expectations for the region. We expect this regional strength to continue.

The West Coast, which comprises approximately 35% of our NOI has performed better than expected. At the beginning of the year, we anticipated San Francisco and Seattle would lag our West Coast markets. While revenue growth results in the first quarter show this to be true on an absolute basis, both markets saw new lease rate growth improved by nearly 900 points compared to our fourth quarter results. The momentum in these markets has exceeded our expectations due to various employers, more strictly enforcing return to office mandates as well as increased office leasing activity from technology and AI companies.

Lastly, our Sunbelt markets, which comprise roughly 25% of our NOI, continue to lag our coastal markets due to elevated levels of new supply, but have performed in line with our expectations. Better drop growth in these markets appear to be bolstering demand and absorption. And similar to other regions, we have seen Sunbelt concessions stabilize.

Sequential blended lease rate growth accelerate and retention improve. We remain cautious on the Sunbelt in the near term but have been pleasantly surprised by its recent trajectory. These regional dynamics reinforce the value of a diversified portfolio across markets and price points that allow us to pivot our short- and long-term operating strategies to maximize revenue and NOI growth.

Moving on, we continue to make progress on various innovation projects that will benefit same-store growth in 2024 and beyond. One example of this is our customer experience project. We have consistently outperformed the public and private markets on NOI and margins over time due to the focus on our leading operating platform and innovative culture, which has historically driven all aspects of income growth, operating efficiencies and contained our cost structure.

We are now turning to the next phase of our platform which focuses on customer experience and retention. Through our proprietary data hub and the millions of data points we have accumulated over the last 7 years, we have found that 50% of resident turnover is controllable. In that, those residents with positive experiences and scores were new at a rate, 20% higher than those with bad experiences. Knowing this, we see an opportunity to improve retention by 5% to 10% versus the industry average of 50%, resulting in a $15 million to $30 million incremental NOI opportunity.

To capture this upside, we now track and score every interaction with our residents. This has allowed us to make a transformational shift in the way we do business with a move from being transactional in nature to a focus on the lifetime value of our customer. We are equipping our UDR team members with tools, training and the ability to prevent or rectify bad customer experiences which we believe over the coming 2 to 3 years will materially improve the [ rent ] experience and our relative turnover. This should positively impact pricing occupancy, other income, expenses and margin as well.

My thanks go out to the UDR associates nationwide, they remain committed to delivering on our strategic priorities. You rightfully deserve credit for embracing our innovative culture and improving how we conduct our business.

I will now turn over the call to Joe.

[Joseph Fisher, executive]

Thank you, Mike. The topics I will cover today include our first quarter results and our updated full year guidance, a summary of recent transactions and capital markets activity and a balance sheet and liquidity update. Our first quarter FFO as adjusted per share of $0.61 achieved the midpoint of our previously provided guidance and was supported by same-store revenue and NOI growth that was slightly above our expectations. The modest sequential FFOA decline was driven by an approximately [ $0.015 ] decrease from same-store NOI, primarily due to higher expenses attributable to seasonal patterns and approximately [ $0.005 ] decrease from higher interest expense and G&A.

Looking ahead, our second quarter FFOA per share guidance range is $0.60 to $0.62 with a $0.61 midpoint flat compared to the first quarter due to nominal expected changes across NOI, interest expense and G&A.

Year-to-date, operating results are trending above our initial expectations. But with macro uncertainty and peak leasing season ahead of us, we have reaffirmed our full year 2024 same-store growth guidance ranges and plan to revisit them in the future. However, we did increase our full year FFOA per share guidance range by $0.02 due to the joint venture successful refinancing of its senior construction loan at our DCP investment in Philadelphia with no additional investment from UDR. Having addressed this risk, there are no remaining DCP senior loan maturities until 2025.

In addition to the Philadelphia investment, there remain 3 additional DCP investments totaling approximately $50 million on our watch list with no material changes since the fourth quarter. Beyond this, our remaining $440 million of DCP investments are performing well as they were primarily 2021 and 2022 vintage developments, which have not encountered material construction cost overruns or delays and are performing in line to above pro forma on rents.

Next, a transactions and capital markets update. First, in alignment with our capital-light strategy, we made no acquisitions, new DCP investments or development starts during the first quarter. We remain active in evaluating potential acquisitions through our joint venture with LaSalle and are optimistic on the ability to complete additional accretive deals in the coming quarters.

Second, during the quarter, we completed construction of a $54 million 85-unit townhome community in Dallas, Texas. This community adds density to our existing Addison portfolio while offering residents a complementary living option. Our current development pipeline consists of just 1 community in Tampa, Florida, totaling 330 homes at a budgeted cost of $134 million with 94% of this cost already incurred, thereby limiting our forward funding commitments.

And third, during the quarter, we completed the previously disclosed sale of Crescent Falls Church, a 214-home apartment community in the Washington, D.C. area at a mid-5% buyer's cap rate for proceeds of approximately $100 million.

Finally, our investment-grade balance sheet remains liquid and fully capable of funding our capital needs. Some highlights include: first, we have nearly $1 billion of liquidity as of March 31. Second, we have only [ $113 ] million of consolidated debt or approximately 0.6% of enterprise value scheduled to mature through the end of the year and only 11% of total consolidated debt scheduled to mature through 2026, thereby reducing future refinancing risk.

Our proactive approach to manage on our balance sheet has resulted in the best 3-year liquidity outlook in the sector and the lowest weighted average interest rate amongst the multifamily peer group at 3.4%. And third, our leverage metrics remain strong. Debt-to-enterprise value was just 30% at quarter end, while net debt-to-EBITDAre was 5.7x, which is approximately a half turn better versus pre-COVID levels.

In all, our balance sheet and liquidity remain in excellent shape. We remain opportunistic in our capital deployment, and we continue to utilize a variety of capital allocation competitive advantages to drive long-term accretion. With that, I will open it up for Q&A. Operator?

[Operator]

[Operator Instructions]. Your first question comes from Nick Joseph with Citi.

[Nicholas Joseph, analyst]

Maybe just starting on the same-store revenue. Obviously, the first quarter was a bit better than what you expected, but hoping you could actually quantify kind of what your expectations were versus the 3.1% that you put up?

[Michael Lacy, executive]

Nick, it's Mike. I'll take the first crack at it. What we're looking at, and as a reminder, we had 70 basis points of blends for the year. And I would tell you, our blends right now in the first quarter, running about 20 basis points higher to start the year. But April, May trend even higher, I'd say, about 100 basis points higher than what we had in our original business plan going into the year.

So to quantify that, if we were able to sustain that 1%, that equals to about $8 million and for us on our revenue line, that's about 50 basis points. So again, it's early in the season right now. We want to see how the next 30, 60 days play out, but right now, we feel really good about where we're trending.

[Nicholas Joseph, analyst]

That's helpful. And how about on the occupancy and the other income side relative to initial expectations?

[Michael Lacy, executive]

Occupancy in the first quarter was about 10, 20 basis higher than we expected. And over the last 30 days or so, we brought that down. So we're running right around [ 96.9% ] today. Expectations are, we'll continue to see that probably migrate down maybe 10 or 20 bps as we continue to push our blends a little bit higher. So overall, I'd say occupancy is pretty much on target through the first 4 months or so.

Other income, though, great. I mean I'll tell you, we were 10% above last year to start the year. April is trending in the same direction. That's probably 200 to 300 basis points higher than we originally thought. And a lot of that has to do with the success from the teams and it is really driving these initiatives home. So right now, other income feels really strong. And a lot of this just point back to our strategy, and we've talked about this over the last couple of months. It's start the year with high occupancy, start to push our blends, test the water as we have demand, and it's all starting to play out for us today.

[Nicholas Joseph, analyst]

That's helpful. And then you touched on the prepared remarks about the benefits of the low turnover that continues to drive lower the high retention. When you look at the renewals you've sent out for May and June, I guess. First of all, where are those renewals going out? And then is there anything from a take perspective or a negotiating perspective that gives you any indications that turnover won't continue to stay low or even trend lower from here?

[Michael Lacy, executive]

Mike, again, good question, Nick. Right now, we're sending out around, was around [ 3.8% ] through June on renewals. And then in July, we just sent out about 4.5% growth. So we are getting a little bit more aggressive on renewals, but at the same time, we're really pushing our market rents. So we're trying to compress the new and renewals. And I think what you saw from us in the first quarter was about a 600 basis point difference between new and renewal. My expectations -- that's going to come down to around 300 to 400 basis points as we move throughout the second quarter. And that's really setting us up to drive total blends, which is equating to total revenue growth a little bit ahead of our expectations.

[Operator]

Next question, Austin Wurschmidt with KeyBanc Capital Markets.

[Austin Wurschmidt, analyst]

Mike, you commented -- I want to hit back on the leasing trends about May, lease rate growth improving versus April. You talked about how things have kind of trended. I think, through the first quarter into April relative to expectation. But which markets are really driving that improvement into May? And maybe where are you becoming a little bit more aggressive on the renewal rate growth. And then do you think you can kind of keep retention or keep occupancy high while pushing a little bit harder?

[Michael Lacy, executive]

Yes. Great question, Austin. We are seeing more strength based on our own expectations coming into the year really out of the West Coast. Right now, we've talked a little bit about what we've experienced in Seattle and San Francisco. And we're starting to see same thing coming out of the East Coast, New York is really picking up as demand picks up. So a lot of strength coming out of our coastal markets, and that's where we're seeing on an absolute basis, the highest rents.

And I'll tell you the one that's benefit price as of late and thankfully, it's 15% of our NOI is D.C. It's really starting to come on strong, starting to see blends in that plus 4% to 5% growth. And a lot of that has to do with getting more aggressive to your point on renewal, seeing that they're very sticky, and it's allowing us to drive our market ramp up as well and it's translating into positive new lease growth. So overall, the Coast feel very strong. But in addition to that, Sunbelt's hanging in there. And what I'm experiencing today is momentum on a month-over-month basis, seeing positive trends coming out of those parts of the country as well. So overall, things feel very positive there.

[Austin Wurschmidt, analyst]

So yes, my follow-up kind of wanted to dig in a little further on sort of the positive surprise or seemingly like you're -- I feel fairly good about the Sunbelt relative to expectations. So I mean, would you be willing to say that the worst is behind you in the Sunbelt and that potentially the benefit of better job growth and maybe easier comps in the back half of the year could lead to continued acceleration? What are sort of the updated thoughts on the outlook through the balance of the year?

[Michael Lacy, executive]

Yes, Austin. That's been getting a lot of questions on the Sunbelt. So maybe let me step back a second, just give you a little bit more color. And as a reminder to the group is, that's about 25% of our NOI. And to your point, we know supply is -- it's a certainty. And it's in front of us. Peak deliveries are still right around the corner, but at the same time, it's during peak demand. So that's a positive, and we're seeing stronger job growth as well as demand is a little bit stronger. And a lot of that has to do with record absorption. So overall, while it feels good, we're cautiously optimistic just given that supply is still coming.

But just to give you a little bit more color on what we're seeing on the ground, I think things that we look at, first and foremost, are the concessions. And I would point to, in Texas today, we're seeing 1.5 weeks. And in Florida, it's about a half a week of concession on our portfolio, which is a pretty significant improvement over the last 6 months and lower than what we're seeing from some of the comps in those areas.

In addition to that, occupancy in the Sunbelt, we're running around 96.5% to 96.7% today. So still very healthy occupancy. And again, we're seeing blends improving on a month-over-month basis. And just to give you a couple of stuff. In April, we were negative 1.5% in the Sunbelt for blends. That compares to negative 2.2% during the first quarter. And I'd tell you, May is shaping up to be even better. So overall, blends continue to improve. But where I'm most excited is our other income. And we've been driving home some of our initiatives in the Sun Belt, I think specifically the bulk Internet rollout that's really taking hold. It's allowing us to drive our other income above 10% in that part of the country, and it's allowing us to drive our total revenue. So again, cautiously optimistic given that peak supply is in front of us. But it's a much better position knowing that demand is also coming at the same time.

[Austin Wurschmidt, analyst]

And then can you just clarify, did you guys underwrite 5% other income growth for the year?

[Michael Lacy, executive]

We were between 5% to 7% growth on our other income line. And again, we're holding around 10% today. So that's a 200 to 300 basis points improvement from what we originally expected.

[Operator]

Next question is Steve Sakwa with Evercore ISI.

[Steve Sakwa, analyst]

Mike, I appreciate all the comments on some of the trends by market. I'm just curious in the Sunbelt, given that we've got heavy deliveries coming over the next 4 quarters. Is it your expectation that the better trends continue? Or has this maybe been either a little bit of low in supply or maybe stronger demand? And like, I guess, how are you thinking about those concession trends maybe over the next several quarters?

[Michael Lacy, executive]

Yes, Steve, we still think that peak supply is -- it's going to hit us here in the next couple of quarters. So we're going to continue to watch that, lean into the things that we control. And again, that's where we're hitting our other income and driving our results against the peers on a relative basis. But we do expect that we're going to continue to take the headwind just given supplies in front of us for the next 6 to 12 months in that market.

[Tom Toomey, executive]

Steve, this is Toomey. Just to add some more color, and I think we had it in our prepared remarks. The record absorption in the first quarter, high for 2 decades. The jobs number, I think, has surprised us all through the balance of the year. If that continues, the Sunbelt has a pretty good path, if you will, and absorb it. I'm not sure betting on the jobs market, going into an election cycle is a very strong bet on that piece of equation.

Second, we're still a little low from last September, October when we saw interest rates spike and we saw a developer's panic and go to a heavy concession template in that supply type market, setting.

And I think we just will kind of be prudent for us to just play it through and see how it falls. I wouldn't get overly optimistic or pessimistic. It's just easier for us to say we're going to play it month by month and see what the traction is with respect to new and renewals. But right now, after 4 months, headed into the [indiscernible] feel better than we expected.

[Steve Sakwa, analyst]

Okay. And then maybe one for Joe. Just as you think about maybe any opportunities for capital deployment. I know you probably don't like where your stock is trading, but how are you thinking about any kind of investment opportunities, whether it's DCP or land purchases for future developments? Like just kind of where are the recurrent opportunities? Where is the opportunity set today?

[Joseph Fisher, executive]

Yes. Steve. So I'd say number one, balance sheet remains in a phenomenal position. So liquidity-wise, maturities sources and uses all look to be in a really good position. So we're able to kind of sit back and be in this capital environment and wait to pivot to offense. I'd say opportunity wise, the transaction market was finding -- footing there in terms of agreement on where cap rates were and buyers and sellers were coming together. Obviously, this recent surge in rates creates a little bit more of an unknown in that environment. And so we're kind of sit back trying to see where valuation starts to settle out here a little bit.

But where we probably tried to target today 2 different areas. One is on the JV acquisition side. JV that we put together with LaSalle last year, we'd, of course, like to continue to deploy with them as we did in the fourth quarter. So trying to find deals in our existing markets, deals down the street and then get the additional upside from the fee stream that comes off of that. So continue to show them a lot of transactions to help to get some things done here in the coming quarters with them.

The other area is within the DCP pipeline, while we're not seeing much on traditional DCP given that we're not seeing a lot of new starts and activity there. We are seeing a little bit more on the recap opportunity side. And so as we look ahead to potential paydowns or payoffs that may come out of that DCP pipeline in the next 12 months, we're starting to evaluate some opportunities for redeployment to put some capital out there on that front.

On the development side, you mentioned that we've got a really good land pipeline right now with a lot of deals that are shovel ready. And so that team has just continued to work out cost and monitor the market and wait to see where we get on some of those yields before we start some of those. But we've got a really good opportunity to hit that hard as well once the market comes into our favor.

[Operator]

The next question, Josh Dennerlein with Bank of America.

[Joshua Dennerlein, analyst]

Just wanted to hit on some of the expenses. I was looking at Attachment 8. There's a couple of markets where you had some pretty big jumps year-over-year like Seattle, Boston, Monterey Peninsula. Anything going on in those markets that we should be aware of on the expense side?

[Michael Lacy, executive]

Yes. Josh, I would say, first and foremost, you have to remember the CARES, we're anniversarying off of that. So as a whole, that had about, call it, 350 basis point growth rate. So if we didn't have that, we would have been 4% overall. But specific to some of these markets, Seattle, as an example, we had taxes go up about 9%. So that drove a little bit more growth there, a place like Monterey Peninsula, utilities were up 7%. So you have some of these other factors that are in play in addition to what we're anniversarying off of given the CARES Act. So that's driving some of the higher growth if you will.

[Joseph Fisher, executive]

Just to add to that because we did get a couple of questions overnight on the expense number. I think we did a great job of telegraphing what was going on there with the CARES Act comp in 1Q. And I think a lot of notes noted that, but that was in line to slightly better than we had expected. So that 7.5% overall expense growth number was definitely not a surprise to us. So as it relates to the range for the rest of the year, we definitely see the path to see that year-over-year number come down here for the next 3 quarters. And when you look at the initiatives around that, be it additional automation of leasing, more no staff properties, some of the stuff we're doing with sweet spot maintenance, some of the purchasing. We still got a lot of initiatives out there to keep that expense number controlled as we have in the past. So I would not let 1Q scare you in terms of is that going to be a recurring issue for us.

[Joshua Dennerlein, analyst]

Okay. I appreciate that. And then back on other income, just kind of curious what's driving the outperformance in the other income line? You mentioned the building-wide WiFi. Is that like people can sign up any time? Or I kind of thought is that like lease renewal or when there's a new lease signed. So any color there would be great.

[Michael Lacy, executive]

Yes. So let me give you a little bit more color just again -- the other income, it does make up over 10% of our total revenue. And so on our stack, we're looking at about, call it, $40 million and 1/4 of that growth came from the rollout of our bulk Internet. And so we did see about $1 million benefit during the quarter compared to about $100,000 last year. So the majority of it is coming from rolling out that initiative.

In addition to that, I'd tell you, the team is doing a really good job just driving some of our other initiatives as it relates to running out common area spaces or adding parking, in terms of more of sign spots there. We're pushing up some of our short-term furnished rentals and then will continue to lean into some of the package lockers. So you put all that together and you're looking at about a 10% increase on a year-over-year basis. And again, April, May look like they're tracking the same.

[Operator]

Next question, Jamie Feldman with Wells Fargo.

[James Feldman, analyst]

I was hoping you could talk a little bit more about how Class A versus B is performing across the markets, across your portfolio?

[Michael Lacy, executive]

Sure. I'll take that. So B outperformed our A's on a blended basis at the portfolio level by about 50 basis points. So what we saw was 1% growth versus 0.5%. And I'll tell you the Sunbelt deviated from the recent trends we talked about last year where B's were underperforming A's across the board. And this does suggest that the supply dynamics are impacting A's more than B's across the Sunbelt, which is more in line with traditional supply dynamics. So overall, it feels like it's normal steady state today, and these are doing a little bit better.

[James Feldman, analyst]

Okay. And then you talked broadly about the Sunbelt, but can you just get a little bit more granular on the trends? You mentioned Texas, but as Dallas different than Austin and then even Florida, Tampa, Orlando and then Nashville, which, of course, it's not Florida. But can you just talk more granularly about those markets? Or are they all pretty much doing exactly what you said in your broader Sunbelt comments?

[Michael Lacy, executive]

I may give you a little bit more color on the makeup of those regions and what we're seeing today. I think first and foremost, starting with Florida. Florida makes up about 10% of our NOI, and it's really split between Tampa and Orlando. Let's say, Tampa, we have about 20% urban, 80% suburban portfolio. We're seeing concessions around 0.3 weeks today. Occupancy is running in that mid-96% range. and Orlando is very similar. So we're seeing about 0.3% weeks concession. Occupancy is a little bit higher at 96.9%. Blends are still slightly negative, but they continue to improve. And so Florida feels like it's on track with our original expectations for the year, specific to Texas, similar in the sense that Texas is about 10% of our NOI, but the majority of this is coming out of Dallas.

So Dallas is 8% of our NOI market, where 15% urban, 85% suburban. We are seeing elevated concessions around 1.5 weeks today, but that has improved from 2.5 weeks about 60 days ago. And we're able to run occupancy in that mid-96% range. So overall, pretty decent numbers coming out of Dallas.

Austin, probably one of the weaker-performing markets today for us. And again, this is only 2% of our NOI. So it's a relatively small market, seeing concessions in that 2-week range, which is probably the highest in our entire portfolio, and that's where we're facing the majority of our supply. But we're still running 96.7% occupancy. You can see in here, volumes are still negative, but they are improving. So again, cautiously optimistic on a lot of these Sunbelt markets. But today, they're performing at expectations.

[Operator]

Next question is Anthony Paolone with JPMorgan.

[Anthony Paolone, analyst]

Maybe, Mike, for you -- I mean you talked about how high the retention is and just the strength of the renewal rates. And so I'm just wondering, like is there a loss-to-lease in portfolio still? Or as we look over the course of the year, does -- do you think this flips to like a gain-to-lease, or how should we think about that and that divergence between new and renewal spreads?

[Michael Lacy, executive]

Yes. Tony, what we're seeing today is a loss to lease right around, call it, 2% to 2.5%. Typically, that grows as you go through the demand period over the next 3 to 6 months, and then it starts to trail off towards the end of the year. But right now, our loss-to-lease is hovering right around that 2% to 2.5% range today.

And I got to tell you, I'm really excited about what the team has done with the customer experience project. And I gave a lot of high level information in my prepared remarks. But I think it's important just to dive into some of the things that we're doing. And I think, first and foremost, our intention was to capture millions of data points. And by that, I mean, we captured every voice mail, text message, e-mail, surveys, service requests, every personal interaction.

And so secondary to that was to develop these proprietary resident community-specific dashboards that chronologically align interactions. I think that's the keyword. It's chronologically putting these in order, so our teams know exactly what's happening at any given time. And I'll tell you finally taking all this information and scoring each experience to gauge real-time sentiment to orchestrate a better leading experience has been huge for us.

And so while it doesn't go unnoticed that people aren't moving out to buy homes as much as they were, say, last year or the year before, this is a big dial mover for us and something that our teams are really leaning into.

[Joseph Fisher, executive]

One, just one other thing, too, in terms of kind of that momentum and that loss to lease question, I think probably one of the things we're most excited about on a year-to-date basis, when you look at the combination of our gross rents and that concessionary number coming down since the start of the year, we're actually up plus or minus 3% on effective rents on a year-to-date basis, which through the first 120 days is a really good result relative to historical averages. Obviously, that's being led by East and West Coast doing a little bit better. But even Sunbelt, as Mike talked about, we're seeing market rents move higher there. And so when you worry about that gain to lease, the fact that market rents continue to move higher at the same time that we're pushing our blends both on renewal and new base is higher. We feel pretty good about that trajectory in terms of -- as a forward indicator.

[Anthony Paolone, analyst]

Okay. That's helpful. And then just the other one, can you comment on what bad debts were in 1Q and whether you expect any improvement from here for the rest of the year?

[Joseph Fisher, executive]

Yes. So when we put together guidance, we had assumed a flat year-over-year number from '23 to '24 for bad debts. Most of that really being due to the fact that we think we did a really good job of assessing the AR balances historically and knowing kind of what we are going to receive over time. And I'd say that's continued to play out.

The good thing is, from a trend perspective, we are seeing some of those long-term delinquents, but a number of them as well as our average balances, have actually been coming down a little bit as we've seen some of those eviction moratoriums come off and seeing the courts open up. And so we're seeing the numbers get better there. We're seeing end of month and subsequent to month-end collections, continue to improve and be some of the strongest that we've seen throughout COVID.

And so the trends right now look pretty good. I'd say, so we're probably a little bit ahead from a bad debt perspective. So I think when we revisit guidance in the future, we'll iron out that number and talk about it a little bit more. But we are really excited about the potential perhaps this year, but definitely going into the future, the actions we're taking and the opportunity that it creates. We've talked about the kind of 1.5% bad debt that we're running at. That's about $25 million a year.

But when you factor in all the other costs from vacancy, turn costs, legal spots, CapEx, that's another $25 million right there. So it's kind of a $50 million total opportunity. I'd say the actions on the front door being taken today, be it the ID and income verification and utilizing some of those AI-based tools, adjusting some of our processes and oversight and just getting more eyes on that area. And then raising some of the thresholds around deposit requirements, income verification requirements, credit scores, some of that. We're pretty excited about what that has the potential to do as we move forward into the back half of this year and into next year. And so we hope that that's another leg up in terms of that collection percentage and some of the delinquency stats as we move into the back half. But I think by middle of year this year, we'll hopefully have a little bit more visibility to speak to on some of that.

[Operator]

Next question, Michael Goldsmith with UBS.

[Unknown Analyst]

This is Amy with Michael. San Francisco and Seattle get a lot of attention, but the UDR portfolio has some significant exposure to Orange County and Monterey within the West Coast markets as well. So I was hoping that you could touch on the supply-demand trends in those markets.

[Michael Lacy, executive]

Yes. Let me give you a little bit of color on all of them. I think first, starting with Seattle and San Francisco because we do get a lot of questions regarding those markets. First and foremost, performing better than we would have expected. And a lot of this has to do with things that are unique to our portfolio. So I'll give you an example. Seattle for us, we're not located down in Seattle. So we're not facing as much of the supply pressure as some others are. We're more located in Bellevue and then out in the suburbs. And what we're seeing in a place like Seattle is Amazon's return to work has really helped demand.

And in addition to that, the light rail actually just opened up in the last week or so, and that's allowing people who get to Redmond in at least every 10 minutes. So that's allowing some of the Microsoft employees to live in more of these urban settings and have EV access to the suburbs. So that's helped out demand to some degree.

I'll tell you what we're seeing in Seattle today, it blends are around 4.5%, and our occupancy is running around 97%. So overall, the fact that we don't have a lot of supply there, it's definitely been helpful. San Francisco, we're 50-50, urban, suburban, we're down in SoMa as well as the Peninsula.

We're seeing concessions come down pretty significantly. We're right around 1 week today compared to 2 to 3 weeks, just [indiscernible] days ago. And a lot of this has to do with return to office. I would tell you, incremental steps to cleaning up the city. And then we're seeing AI and biotech jobs return, and we're seeing jobs return as well.

So a little bit more demand in San Francisco and not a lot of supply to speak to. So those markets have allowed us to really drive our blends into 2Q. And again, both markets are in that, call it, 4% to 4.5% range.

Specific to Orange County, that is 11% of our NOI, was mainly suburban, seeing a lot more growth in the Newport Beach area than call it Huntington Beach as well as Irvine just because we have a little bit more supply that's putting pressure on us there. But overall, Orange County is performing as expected and feels pretty good today.

[Unknown Analyst]

Great. And then a quick question on the other income. Improving turnover is certainly positive both for the revenue and expense side. But I'm hoping that you can provide some examples of what sort of that experiences you're seeing that you think that you can do better on from a resident experience side? Like is this, people complaining about loud trash removal or their neighbors or how do you think that you can do better on these items?

[Michael Lacy, executive]

That's a really good question. And you'd be surprised to know that rent increases meanwhile, it's a factor, it's 1 of 15 factors, and it's not even in the top 5. And so some of the things that we're finding with going through these millions of data points, it comes down to what you're saying. It comes down to trash, pet waste, noise, the move-in experience. You have to make sure that that's bulletproof. As well as even [ pet ] issues.

And so a lot of things that are very controllable, and that's why we're leaning into it. The team is very focused on it. If we can adjust some of these things, we think we can change the trajectory and we're seeing it play out in front of us. But I'll tell you there's a lot more to come. I think there's probably another year to 2 years of learning, and we're going to continue to put training in place. We'll continue to do [indiscernible] testings, and we'll drive this even further as we move throughout this year and into next year.

[Operator]

Next question, Nicholas Yulico with Scotiabank.

[Nicholas Yulico, analyst]

I guess first question, Mike, sorry if I missed this, but -- did you give the new lease rate growth, how that's looking in April for the Northeast? Could you also just explain why that number was a little bit weaker than some other markets in the portfolio in the first quarter.

[Michael Lacy, executive]

So we did not provide that, but I'm trying to look through some of my notes here quickly. What I would tell you is new lease growth continues to improve. And when you think about what we just put out there as a whole, on our blends being roughly around call it 2% in April. Our new lease growth is roughly flat. And as we move throughout May, expectations are that's going to turn positive. And I think what we're seeing across the board, whether it's the Northeast or even the West and Southwest regions we're seeing improvement there. And a lot of that has to do with pushing our retention up, holding our renewals at a pretty steady rate and trying to find a happy medium on those blends between new and renewal. We're going to continue to test the water as well we can and see where it takes us. But overall, what we're seeing is a positive momentum pretty much across the board.

[Nicholas Yulico, analyst]

Okay. Second question is maybe for Tom or Joe, in terms of -- it seems like you have the policy of not revising same-store guidance in the first quarter. And I know you talked about you still want to see the leasing season in the spring play out, and there are some reasons to be cautious in some instances, but you are, it sounds like you are trending above the guidance. So I guess I'm just wondering what is the reason at this point to have that policy since a lot of your peers do adjust in the first quarter. And in fact, I'd say much of the broader REIT market is willing to adjust guidance in the first quarter. So if you could just remind us sort of why you feel strongly about that policy? Or if this is just an instance of situation on the ground. There's still a reason for caution, Sunbelt supply, whatever it is driving that decision.

[Joseph Fisher, executive]

Yes. Nick, it's Joe. I'd say as it relates to the broader REIT market, we don't pay a lot of attention to their policies, but I'd just remind everybody, by and large, the broader REIT market is a longer lease duration sector. So maybe a little bit less exposed to the volatility of supply or macros that comes quarter-to-quarter. So as we look at ours -- we've traditionally had that policy with the exception of during COVID when we saw meaningful outperformance to start the year back in '22.

And so we traditionally said we're only 120 days in the year. We've got a lot of the leasing season left. We've got a lot of actions that we can take from a capital markets activity perspective, a lot of opportunity to innovate and drive performance, but also a lot of opportunities for supply to creep up on us or macro to creep up on us. And so we typically like to stay conservative, see how the market comes to us, focus on what we can control. And then as we have that news to deliver, we deliver the good news throughout the year and try not to get out of our SKUs.

Last year, as Tom mentioned, we were surprised by the reaction from some of the developers on the concessionary side to higher rates and some of the new supply coming on. And that surprised us September, October and November, and we had to reduce guidance. By no means is that something that we want to repeat this year at any point in the future. And so that's definitely in the back of our minds as well.

And I would say, as it relates to the range, we think the range is still good. If we were well outside the range, then I think we'd have to give it a good thought. But as Mike said, we're trending ahead, ahead does not mean we're exceeding the high end of the range at this point in time based off our internal forecast. So that range is still a good range at this point in time, and we're just doing better than the midpoint.

[Operator]

Next question, John Kim with BMO Capital Markets.

[John Kim, analyst]

I don't think anyone's asked it yet, so I'll give it a shot. Your Attachment 8(E), you no longer provide the market detail on new and renewal spreads. And I was just wondering why decrease that disclosure. I found it very helpful in the past.

[Joseph Fisher, executive]

John. So that's part of our annual review that we do with the disclosure committee. They go through and look at best practices throughout the broader REIT space, but also adjust within the multifamily peer group. And so when we looked at what others did around disclosure and the blends, we found that some do regional, some just do portfolio, but we're definitely an outlier with the level of detail that we provided on 20 different markets.

And so when we looked at that and looked at the fact that some of these markets may only have 1,000 units in them. When you look at L.A. or Monterey Peninsula, at Richmond and Austin, those are 3 or 4 assets. And I know a lot of investors and analysts utilize us as a read-through to some of the other portfolios that are out there, be it Coastal or Sunbelt.

To the extent that you only have 1,000 units in the market, you can get more volatility off of a couple of assets. It's probably not fair for a REIT to do, carry on to others. So we felt that regional, still provided everybody across those 6 or so regions, the amount of detail that they needed to understand, what was going on with our portfolio and potentially regionally for other portfolios. But we did want to remove the detail on individual markets, which Mike can still speak to, but I just want to pull it back a little bit.

[John Pawlowski, analyst]

Okay. Got it. Joe, you also mentioned on the DCP, the watch list remains at $50 million over 3 investments. It didn't move despite the favorable resolution of 1,300 Fairmount. Can I ask what investment got added to the watch list and what's the likelihood of consolidating when these assets are among these 3 investments?

[Joseph Fisher, executive]

Yes. So I'd say it's no change to the watch list. So there's a total of 4 assets on that watch list. It's that Philadelphia DCP that we just went through the successful refi for, plus the 3 others that were still in their last quarter. So 4 in total totaling $150 million.

So while we are obviously very pleased on the 1,300 Fairmount transaction to see that refi get done, with no additional investment required from us or the equity partner. That buys 2 years plus a 1-year extension to continue to focus on operations there. Get the NOI trajectory up, get into a potential of different capital markets environment and work through a lot of the supply that's in that submarket right now. So it's kind of a live to fight another day situation. And I'd say, thus far, really pleased with the leasing trends in the last 30 to 60 days. As we see that occupancy number start to pick up from the, call it, high 70s into the mid-80s. And so like the trajectory they're on, but we're still keeping them on the watch list for the time being.

The 3 others are roughly $50 million across 3 investments. No change there, it's just simply the NOI yields or the debt yields on those are kind of in that 6% to 7% range. We'd like to see those in the high-single digits as the rest of our portfolio is.

And specific to those 4 deals, they kind of had a confluence of the 3 major risks that are out there, right? They had delays or cost overruns due to COVID because they are older vintages. They had challenging submarkets, which pushed down rents and the cash flow stream. And then what everybody is dealing with, which is lower valuations, higher interest rates. So those are kind of the 4 assets that really have only the confluence of those 3. The rest of the portfolio were different vintages, kind of '21, '22 type of vintages where they're in lease-up, the pro formas are in line ahead of expectations. And so debt yields are materially higher. And so we just don't see risk in the rest of the portfolio at this point.

[John Kim, analyst]

Does your current guidance contemplate unfavorable outcome for any of these 3 investments? In other words, could there be other upside?

[Joseph Fisher, executive]

No, that's -- yes, it's a great question. I should have clarified that. Thank you. Now the upgraded guidance took the downside risk from the Philadelphia out of the equation. So no FFOA risk related to that or the other 3 that we see this year. The next maturity for one of those is January of '25. And thereafter, the other 3 are in mid-'26 generally. And so we have time on all of those. I'd say if you wanted to bracket the potential downside, if all 4 of those transactions, that $150 million, if we had to go off of the accrual and buy in at the lower yield, it'd probably be about $0.03. But between now and 2 years from now, obviously, we expect upside on NOI from those assets. And so we don't see that full risk into fruition, even if all 3 of those did eventually have to be taken back at their maturity.

[Operator]

Next question Adam Kramer with Morgan Stanley.

[Adam Kramer, analyst]

Just wanted to ask maybe a little bit more of a high level, maybe theoretical conceptual question. You talked a little bit about the kind of robust job growth we've had so far this year, and I think it's something to certainly focus on when it comes to apartment demand. Maybe just walk us through, is there any kind of -- I don't know if it's a rule of thumb or a way that you guys think about for x number of new jobs created. How many apartment renters are created or what that does in terms of kind of quantifying apartment demand for you guys?

[Joseph Fisher, executive]

Yes, it's good because we kind of took a look at that as we step back, if you remember, when we put together our initial guidance, we have put together our top-down perspective as well as the bottom-up budgeting process that we always do. And our assumptions that led to that plus or minus 1% rent growth or roughly 70 basis points of blends for the year, that was driven by a multitude of factors, including GDP, wages, job growth, all being low-single digits based off consensus. We had a decline in homeownership rate and then the higher supply number that we [ knew ]and expected.

And so the general rule of thumb is that for the 2 biggest drivers of that number, wages and jobs, about 1% in the combination of those 2 relates to about 1% increase in rents. And so really, the only changes to our forecast at this point that we're seeing from a macro perspective. Supply, homeownership, GDP, all trending as we expected. It's really been jobs and wages have been coming in about 1% or so better. And so that percent better would translate, if you will, and to maybe 1% or so better rents over this year. If that holds obviously, that's consensus, and it can change. But I think that's a lot of why you're seeing some of the performance that Mike talked about coming in better than we expected. It's been a much better backdrop in terms of the demand environment to date.

[Adam Kramer, analyst]

Great. That's really helpful. Maybe just one a little bit more on the ground, if you will. You talked about it a little bit earlier, but just, I think you guys were really kind of present and clear with the narrative last fall post-Labor Day. It's kind of what happened with the 10-year at that time and kind of what that meant for concession usage on the ground. And maybe taking about the 10-year is today, maybe not quite where it peaked out, but certainly could be higher than it has been in the last number of months. Maybe just walk us through, are you seeing kind of elevated level of concessions again, are you seeing developers maybe change their behavior given where the 10-year is relative to 2, 3, 4 months ago.

[Michael Lacy, executive]

Adam, I'll kick it off and kick it over to Joe. I'll tell you what we're seeing on the ground, and as you can see it in our numbers, concessions have been coming down. And I think, this is due in large part to the fact that a lot of these deliveries are coming at a time where you also have demand picking up. And that's the big difference between what we experienced back in 3Q of last year. You had a lot of deliveries coming when -- very demand was starting to go the other way. And so there's a big difference there. There's still more supply to come. So we're, again, cautiously optimistic of where this is headed. But from what we can see on the ground today, concessions have actually come down a little better.

[Tom Toomey, executive]

This is Toomey. I'd probably just add a little bit more to it. And in the developer's mindset, he's looking to add this rollover loan in what terms you can get in proceeds. And so in case of last year or third quarter, we really faced with falling rates, slow traffic, 50 bps spike in your refi and your proceeds coming off 10% to 20%. So that you got squeezed from every angle possible, and you just drop rate to try to fill up to get some level of cash flow because what's probably your most stressful point isn't necessarily the rate. It's the proceeds number. And on a debt service coverage ratio, that squeeze right there means your check to rebalance your loan, if it's $100 million and it went from $10 million to $20 million, you don't have extra $20 million in your pocket. So you hit the panic button, then you try to respond that way. And can that happen again unlikely, but it can. And I think we want to be prudent and see how that emerges. And anyone that can figure out where the 10-year treasury is headed. Please call me because it's a lot easier than buying lottery tickets.

[Operator]

Next question, Alexander Goldfarb with Piper Sandler.

[Alexander Goldfarb, analyst]

Two questions. First, just looking at New York with the recent rent law changes. One, do you see any DCP opportunities for you to help finance third-party office to resi conversions? And then two, with the new laws really do you see any buildings where either they're pre-2009 or you don't see a sightline to exceeding the luxury rents to escape good cause that you would look to prune?

[H. Andrew Cantor, executive]

Alex, this is Andrew. I'll take the first question and then pass it off to Chris for the second one. As it relates to DCP opportunities, we're always open to underwriting any transactions that we see in the marketplace. To date, we haven't seen anything yet. But we evaluate each opportunity based on its merits. And if it's the right deal, then we'll move forward. So at this point, there's nothing we're working on, but it's not [ red bind ] by any stretch.

[Christopher Van ens, executive]

Yes, Alex, it's Chris. Before I dive into New York rent control, maybe let me first step back, talk to the big picture a little bit more on the regulatory side. So first, I would say many of our state legislative sessions have convened for the year while we continue to see bill signed and a lot that impact our -- really our business at the margin. This really was the second year in a row where major legislation like extremely restricted rent control, I would say, for example, that could negatively impact our business in a significant way. It was largely defeated in most of the areas we operate. Obviously, a good trend for the industry, trend we hope continues in the year ahead. So really big things goes out to our advocacy partners around the country.

As far as New York rent control, you talked about pre -- or 2009 buildings, it really seems like it will be business as usual for us right now. I mean we've lived with similar restrictions in California and Oregon for a number of years now. We've continued to generate good growth, good returns in those areas. We don't see it being much different moving forward in New York. It's only very rare years, I would say, where market rent growth is likely to be above CPI plus 5 or a cap of 10.

Lastly, I'd say, of course, there's always the risk of a slippery slope, right? The CPI plus 5 become more restrictive over time. Something we'll continue to monitor. But again, we had the same concerns when 1482 was passed in California, and those concerns have not manifested today. So all in all, New York included, we feel relatively, I would say, okay, about the regulatory environment right now.

[Alexander Goldfarb, analyst]

Okay. And then the second question is, you guys have spoken about a pretty strong operating environment echoing your peers. It's interesting because on the office front, there's still a sense of corporates outside of maybe Midtown Manhattan still being hesitant to lease or to take space. So what are your property managers seeing is driving the demand? Is it really -- is it just a lot of small businesses hiring and there's a disconnect? Or are they seeing a lot of corporate jobs that are coming in to rent -- employees renting apartments and therefore, that's -- you guys are indicating a sign that the corporates are going to return in a growth mode. Just trying to understand the disconnect between what the apartments and you guys are saying about healthier-than-expected demand versus some of the comments from other REIT sectors.

[Michael Lacy, executive]

Alex, it's Mike. Funny enough, I actually spent last week with our teams out there in New York and ask them that same question and a lot of this comes back to lifestyle. So they're still saying that people are coming back to the market. They just want to live in Manhattan. They want to feel the experience of being there. And expectations are that they've somewhat plateaued in terms of people returning to the office, but there's still room for that to continue to grow. And if and when that happens, that will only help demand even more.

But we're continuing to see occupancy of almost 98%, and our blends are back up in that 4% range.

So very strong demand in that market. And we expect that to continue throughout the summer months just given the fact that there's not a lot of supply to speak to in the city. You definitely have more in the -- in, call it, Brooklyn, Long Island City, places like that. And as long as they don't go to 2- to 3-month concession, that's not going to pull people out of the city. And so we feel really good about New York today.

[Alexander Goldfarb, analyst]

Right. But Mike, across all markets that you guys are in, you're seeing a similar dynamic. It's just people wanting to live in the different markets, not necessarily meaningful job growth? I'm just trying to understand the difference.

[Michael Lacy, executive]

Yes, Alex, I think that's a fair point. I don't think every market is created equal. And I think as an example, I talked a little bit about San Francisco earlier, that market is still getting cleaned up. And I think once they get that cleaned up a little bit more, people want to live down there, and it will be a similar dynamic to what we're facing in a place like New York. But every market is created a little bit different. But overall, I'd say, yes, those sentiments are the same across the board.

[Joseph Fisher, executive]

And I'd say too Alex, just as it relates to the demand. I mean, we talked about jobs and wages both coming in ahead of expectations. The consensus is well over 1 million jobs at this point in time. And so while we focus a lot on the multifamily supply picture as we should, and kind of that national picture of, call it, 600,000 or so units being delivered this year. Keep in mind, the lion share housing is over on the single-family side, which has seen minimal increase on a year-over-year supply basis at around 1.1 million units. You're also seeing from an existing supply perspective, really no homes being sold, you're back to kind of GSE lows. And so you kind of do get into this environment where what's available for all those jobs that are being created and therefore new households that are being created.

And when you have the relative affordability component in multi where we are 60% less expensive than a single-family home and then if you come around with us, you can put an extra $35,000 a year in your pocket versus buying a home. That's pretty darn compelling. And so you're seeing renter shift gain more than their fair share of that demand that's been put out there into the market right now. And so I think that's a big driver of what we're seeing.

[Operator]

Next question, Linda Tsai with Jefferies.

[Linda Yu Tsai, analyst]

In terms of April retention improving 400 bps from a year ago, is this consistent across your portfolio? Or are there regional differences?

[Michael Lacy, executive]

It's pretty consistent. Again, what we're seeing is a lot of these actions that are put in place from what we're doing with the customer experience project. And so I'd say relatively consistent across the board. The only difference I would tell you is in a place like the Sunbelt, historically, what we would have experienced is call it, 20% of our move-outs were leaving to buy a home. Today, that's closer to 10%. And so significantly less people moving out to buy homes in places where it was historically more affordable. But other than that, a lot of this has to do with the actions that we're putting in place through our innovation.

[Linda Yu Tsai, analyst]

And then in terms of automation, as you move forward, does it ever become apparent that automation is being relied upon too soon that efficacy falls short and impact service levels and then you have to recalibrate and move people back into seats. If so, how do you monitor and correct that?

[Michael Lacy, executive]

Yes, Linda, that's a fair point. That's something we've experienced as we transition from, call it, Platform 1.0, where the intention was to go to that self-service model, and we reduced our headcount by about 40%. We have found that there are cases where you have to add bodies back that will drive value in the long term. And so we've been going through that over probably the last 12 months or so. And we're still trying to find opportunities where we can run what we call the unmanned sites. And today, we're around 20% of the portfolio. We are adding back from the customer service type positions in the field to make sure that we're acting all these items that we mentioned earlier as it relates to how you change that trajectory and retention.

So I think there are cases where you can find opportunities to drive value and sometimes if you have to add bodies back.

[Operator]

Next question is [indiscernible] with Baird.

[Unknown Analyst]

Have your views changed for the Sunbelt and the timing to absorb all the new supply, given the strong absorption trends you've been seeing?

[Joseph Fisher, executive]

I don't think, as we kind of look through it, obviously, we go through the peak delivery cycle here over the next couple of quarters. And so 2Q, 3Q is kind of your peak, but it's not a dramatic drop off. It's going to take a while to work through the lease-up of those deliveries. But even into 2025, when you look at overall deliveries coming that year, it's going to be a pretty normal year in terms of relative to long-term averages with the Coast actually coming in a little bit lower as they start to see it drop off a little bit quicker in terms of new starts and permits activity.

So Sunbelt still stays a little bit elevated as you go into '25. I think it's still late '25 that you really get the benefit of that, call it, fourth quarter of '23 drop-off and [ seize ] up in capital markets where you saw starts fall of a cliff down. They're going to $200,000, $250,000 on an annualized business in 4Q '23.

And so next year is probably a little bit more normal year, still some pressure on the Sunbelt. '26 has the potential to be a pretty phenomenal year in terms of the lack of housing that's available out there and what that could mean for fundamentals for our sector.

[Operator]

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

[Tom Toomey, executive]

Thank you, operator, and thanks to all of you for your interest and support of UDR. And we look forward to seeing many of you at the Wells Fargo conference next week and NAREIT in June. So with that, we'll close this today. We're always available to take your follow-up calls and take care.

[Operator]

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