Anthony Paolone: Okay. Thanks. 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: 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 moratoriums come off and see in the courts open up. And so we’re seeing the numbers get better there. We’re seeing end the 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. And 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.
Anthony Paolone: Okay. Thank you.
Operator: Next question, Michael Goldsmith with UBS. Please go ahead.
Unidentified Analyst: Hi, this is Amy on for 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: 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 works 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 and at least every 10 minutes.
So that’s allowing some of the Microsoft employees to live in more of these urban settings and have access to the suburbs. So that’s helped out demand to some degree. To tell you what we’re seeing in Seattle today, it blends at 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 and as well as the Peninsula. We’re seeing concessions come down significantly or right around one week today compared to two to three weeks, just 60 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 urban 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.
Unidentified Analyst: Great. Thanks. 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?
Joseph Fisher: That’s a really good question. And you’d be surprised to know that rent increases meanwhile, it’s a factor, it’s one of 15 factors, and it’s not even in the top product. And so some of the things that we’re finding with going through these billions of data points, it comes down to what you’re saying. It comes down to trash, pet lease, noise, the movement experience. You have to make sure that that’s bulletproof. As well as even pest 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 two years of learning, and we’re going to continue to put trainings in place. We’ll continue to AD-testings and we’ll drive this even further as we move throughout this year and into next year.
Unidentified Analyst: Great. Thank you.
Operator: Next question, Nicholas Yulico with Scotiabank. Please go ahead.
Nicholas Yulico: Thanks. 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: 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 blend being roughly 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 renewals. 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: Okay. Thanks for that. 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. Thanks.
Joseph Fisher: Hey Nick, it is 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 opportunities 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.
Nicholas Yulico: I appreciate that, thanks Joe.
Operator: Next question, John Kim with BMO Capital Markets. Please go ahead.
John Kim: Good morning. I don’t think anyone’s asked it yet, so I’ll give it a shot. Your attachment AD, 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: Hi, 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 just 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 most of 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 three or four 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 REIT to carry on to others. So we felt that regional still provided everybody across those six or so regions. The amount of detail that they did with, 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 Kim: Hi, got you. Joe, you also mentioned on the DCP, the watch list remains at $50 million over three investments. It didn’t move despite the favorable resolution of 1,300 fair amounts. Can I ask what investment got added to the watch list and what the likelihood of consolidating any of these assets are among these three investments?
Joseph Fisher: Yes. So I’d say it’s no change to the watch list. So there’s a total of four assets on that watch list. It’s that Philadelphia DCP that we just went through the successful refi for, plus the three others that were still in their last quarter. So four 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 two years plus a one 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 three others are roughly $50 million across three 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 four deals, they kind of had a confluence of the three 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 four assets that really have only the confluence of those three. 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: Does your current guidance contemplate an unfavorable outcome for any of these three investments? In other words, could there be other upside?
Joseph Fisher: No, that’s — yes, it’s a great question. I should have clarify that. Thank you. No, the upgraded guidance took the downside risk from the Philadelphia out of the equation. So no FFOA risk related to that or the other three that we see this year. The next maturity for one of those is January of ’25. And thereafter, the other three 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 four 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 two years from now, we obviously expect upside on NOI from those assets. And so we don’t see that full risk into fruition, even if all three of those did eventually have to be taken back at their maturity.
John Kim: Great, thank you.
Operator: Next question, Adam Kramer with Morgan Stanley. Please go ahead.
Adam Kramer: Hey guys, thanks for the time. Just wanted to ask maybe a little bit more of a high level, maybe theoretical contextual question. You talked a little bit about the kind of robust jobs 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: 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 two biggest drivers of that number, wages and jobs, about 1% in the combination of those two relates to about a 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.
