Greetings. Welcome to UDR's Second Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Senior Director of Investor Relations, Trent Trujillo. Thank you, Mr. Trujillo, you may now begin.

Welcome to UDR's quarterly financial results conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website, ir.udr.com. In this supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Statements made on 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 second quarter 2022 conference call. Presenting on the call with me today are Senior Vice President of Operations, Mike Lacy; and President and Chief Financial Officer, Joe Fisher, who will discuss our results. Senior Officers, Andrew Cantor and Chris Van Ens will also be available during the Q&A portion of the call. Let's get started. We continue to be in the strongest operating environment I've seen over my tenure in the multifamily industry. This is largely driven by the strength of our customer, relative affordability among housing options and steady near-term supply. This, combined with ongoing accretion from our well-timed 2021 acquisitions and DCP activity, drove our strong quarterly results including a 16% year-over-year increase in FFOA and led to our second guidance raise this year. Still, we are aware of the underlying economic crosscurrents that support our business and how they may impact the results in the near term. We believe UDR is well equipped to manage this environment based on what we can control, specifically, first, our diversified portfolio as defined by geographic mix, portfolio quality and location within markets should provide some level of risk mitigation. Second, our ongoing innovation will continue to drive relatively better margin expansion and drive more accretive dollars to the bottom line, irrespective of the macro environment. Third, our anticipated 2023 revenue growth earn-in of 5% is about 4x the average earn-in over the past decade. Fourth, our balance sheet in excellent shape with plenty of capacity to invest in highly accretive opportunities. And last, compared to prior periods of economic uncertainty, we have a lower leverage profile, higher liquidity and minimal debt maturities over the next 3 years. While not in our direct control, there are also favorable conditions that are supportive of the…

Thanks, Tom. To begin strong same-store cash revenue and NOI growth of 11.4% and 14.7% accelerated sequentially by 60 and 70 basis points and above our expectations. Key drivers of these results included: first, effective blended lease rate growth accelerated more than 300 basis points sequentially to 17.4%. This resulted from the differentiated pricing strategy we implemented earlier in the year, whereby we have traded 10 to 30 basis points of occupancy to drive rental rate growth and improve our 2023 rent roll. And second, annualized resident turnover ticked up year-over-year to 50% but of the 16% of residents that moved out because of rental rate increases, we re-leased those apartment homes at an average 30% higher effective rate. This enabled us to capture embedded loss to lease quicker than normal, highlighting our rationale for allowing turnover to increase. This approach of focusing on rental rate growth has maximized 2022 revenue growth and we anticipate a 2023 earn-in of 5%. This is the highest earning in our history. It's double our previous high which we achieved coming into 2022 and is nearly 4x the average earn-in over the past decade. As is clear from the regional results we reported, strength is broad-based. Sunbelt markets continue to demonstrate phenomenal growth, while West Coast markets such as Los Angeles and San Francisco as well as East Coast markets such as New York, were among our leaders in year-over-year growth. Currently, same-store revenue growth drivers remain robust. London lease rate growth is expected to be roughly 16% in July, with new lease rate growth of more than 17% and renewals of approximately 15%. While we expect tougher comps on new lease rate growth in August and in September due to the exceptionally strong results from a year ago, renewals have been sent out…

Thank you, Mike. The topics I will cover today include our second quarter results and our updated outlook for full year 2022, a summary of recent transactions and capital markets activity and a balance sheet and liquidity update. Second quarter FFO as adjusted per share of $0.57 achieved the high end of our previously provided guidance range and was supported by strong same-store revenue growth and further accretion from our 2021 acquisitions. For the third quarter, our FFOA per share guidance range is $0.58 to $0.60 or an approximately 4% sequential increase and 16% year-over-year increase at the midpoint. This is supported by continued positive sequential same-store NOI growth and accretion from recent capital allocation activities, partially offset by increased interest expense, given recent changes in the yield curve and higher G&A to enhance innovation and retain talent. These same drivers led us to increase our full year 2022 FFOA and same-store guidance ranges for the second time this year. We now anticipate full year FFOA per share of $2.29 to $2.33. The $2.31 midpoint represents a $0.03 or an approximately 1.5% increase versus our prior full year guidance and a 15% increase versus full year 2021. The guidance range increase is driven by a $0.04 benefit from improved NOI and offset by approximately $0.05 [ph] each from higher interest expense and increased G&A. For same-store guidance, we have increased our full year revenue and NOI growth ranges by 125 basis points and 150 basis points, respectively, to 10.5% to 11.5% and 13.25% to 14.75% on a straight-line basis. In addition, we have lowered our capital uses by approximately $240 million for the year as we have proactively reduced our net deployment strategy and pivoted away from acquisitions and towards higher risk-adjusted return land acquisitions and DCP investments. While these…

[Operator Instructions] And our first question comes from the line of Nick Joseph with Citi.

And I appreciate all the comments and thoughts on external growth. As you look at the DCP environment and opportunities today, how has it changed over the last 3 or 6 months, just given kind of the lending environment, higher interest rates and some of the other opportunities that may present themselves?

Nick, it's Joe. So maybe a couple of things because there are some wrinkles within our DCP pipeline and the recent investment activity that you've seen here in this quarter last. So we are starting to bifurcate that DCP portfolio into our traditional investments which are residing or preferred equity lending on to traditional developers and development assets. And then you see some of these recapitalizations that have taken place. Subsequent to quarter end, we had a $100 million portfolio deal as well as back in 2Q, we had the Portland deal. So we are starting to bifurcate that a little bit. I'd say on the traditional DCP deals, you still see plenty of activity employee interest in that space. The returns really haven't moved up meaningfully. So they've picked up a little bit but not as much as a 1:1 ratio might imply if you thought about whereas traditional cost of debt done. And so returns there are still kind of in that 11% to 12% IRR type of range. And then when you come over to the recap space, we are seeing really good economics there. And so that space is a little bit different for us and that traditional DCP, we're really trying to go after the underlying assets at the end of the day have the optionality. In addition to the good returns, with the recap side, we're just viewing this as an opportunity to get really good IRRs on a risk-adjusted basis relative to the underlying real estate. And so those are generally in that kind of 8% to 9% range and I think that area of the market has really come towards us in the last 3 to 6 months.

And then just on the land, are you seeing any repricing of land just given where construction costs have moved? And then how are you thinking about underwriting the developments or the future development on some of these land parcels that you acquired?

Yes. On land, no, we're really not seeing much repricing at this point in time. Traditionally, land prices remained much stickier. So you don't see as much volatility on that side. I would say though that when you look at the land acquisitions that we had in the quarter, a number of these are exceedingly long lead times. So when you look at something like the Riverside transaction, that's a transaction that we wouldn't work with for probably 5 years now with a potential joint venture partner on the retail side. Ultimately, we have fixed pricing on our 50% and we're able to buy that out at a discount as well buy out the partners 50%. So some of these are longer lead time in nature. But overall, not seen a lot of volatility on that land price. When it comes to future starts, our near-term start is going to be Newport Village, that's a densification play on an existing asset. So we're probably going to start. That pricing will be about $150 million, $160 million starting in the third quarter for almost 400 units. As we think about the future starts, generally, we run with about a 5% contingency for price purposes and risk but we're also increasing expected pricing by about 1% per month at this point in time in our underwriting for the next year. And so that Newport Village deal or a couple of additional transactions we'll be looking at starting in 2023, we think we're pretty well covered from a cost and risk perspective. And that's still allowing us to get to that low 5s current yield and a mid- to high 5% stabilized yield on those transactions.

Next question comes from the line of Austin Wurschmidt with KeyBanc.

Mike, you alluded to this a little bit in your opening remarks but maybe to put a finer point on it. If we take the 5% earn-in and assume that rent growth gets back to historical inflationary levels in 2023. Is it fair to say 7% same-store revenue growth is achievable next year, assuming kind of the macroeconomic backdrop doesn't accelerate to the downside?

Austin, I think that's fair. Just taking the math of, again, that 5% earn-in, if we can get to 4% market rent next year, use a midyear convention. And yes, you get to 7% pretty quickly. That being said, I'd like to point out, we've done a good job over the years of trying to be a little bit more innovative in nature, just going after other income. So there are other things out there that we are constantly looking at. And again, we have a pretty good pipeline at this point of ideas. So we think that we can continue to push that as well.

That's helpful. And then I know strategically you guys have tried to draw down on your loss to lease but where does that figure stand today? And also, if we do things -- see things soften up a bit, do you think the loss to lease that some still have provides a little bit of a cushion in terms of how portfolio rents would start to roll over? Or in reality, if demand softens, do you think that disappears pretty quickly as people look to hold occupancy?

That's the thing with loss to lease. You want to capture it while you have it. And today, we've seen loss to lease continue to go up. And last time, we talked this thing around high 9%, 10% range [ph]. Today, it's sitting around 8.5%. And again, that goes back to our strategy of really driving our rent roll. And you can see in both our market rents, how that's played out on new lease growth and really, especially on that renewal side, we've been able to push a little bit more aggressively. Again, that's leading into that earning of 5%. And frankly, today, we think we have very good visibility. I mentioned in my prepared remarks of call it [ph] around 85% of our leases for the year because we can basically see what's being sent out through September, October at this point, we see where our market rents are going. We feel really good about that 10% to 12% that sits out there in terms of blended growth in the back half. And so when we sit here and we talk about where we're trending, we'd have to be 0% growth in the fourth quarter to really move away from that 5% earn-in closer to 4%. Again right now, 3Q looks like it's in the bag. It's close to 12% to 14% today. So we've got a lot of visibility, a lot of dashboards out there that we're looking at. And again, it goes back to that innovative approach, a lot of green lights telling us to push go. So we feel good about where we're at today.

The next question is coming from the line of Steve Sakwa with Evercore ISI.

Steve, are you there?

Can you guys hear me?

Yes. You're good, Steve.

Okay. I guess the headset died. Anyway, just to circle back on capital allocation, Joe, I think you said on these new land parcels that you bought, you thought that yields were maybe in the high 5s. And I think you said your current developments are kind of yielding 6.5%. And DCP is getting to kind of 8% to 10%. I'm just trying to think through with the economy softening and slowing, not clear how much. I mean, I guess, how are you thinking about that capital allocation and maybe changing underwriting criterias and prioritizing kind of where to put the incremental dollar today?

Yes, good questions. I'd say, first off, I think you see within the guidance, the pivot that we have from a capital allocation standpoint. So broadly speaking, pulling back on capital deployment, I'd say, while we're not always experts on the macro perspective, I think we are pretty good on pivoting and adjusting to cost of capital and knowing when to pull back and really when to push forward. So we did net-net pullback deployment strategy, with guidance now at this point, effectively everything that we've done to date is reflected in the high end of those numbers. So we're not taking into account additional speculative activity from here. When you do think about that pivot, though, the DCP and development, i.e. land acquisition did tick higher. Part of the reason we like that is because they are smaller dollar amounts and then they create future optionality. In the case of DCP, obviously, you have better optionality on the back end to potentially monetize and acquire some of those assets. Historically, we've had about a 50-50 hit rate on that. And then development, while we are building up the land bank, we're not hit and go today. So all of those land parcels and development starts aren't starting in 3Q. We have Newport Village here to close out the year. The rest of our starts are really probably going to be 2023 decisions. So we think we got the land at a good basis. We got a good price there. We feel comfortable with the underwritten yields at low 5s on a current basis and high 5s on a stabilized basis and that's factored in contingencies plus inflation. And so it does give us that optionality though. If the macroeconomic environment continues to deteriorate, if cost of capital changes, I think we'd reevaluate kind of sequencing of those starts and think through sources and uses at that time. So I think for now, you've seen most of what you're going to see out of us on the cap allocation side.

Great. And then -- this is a little more of a technical question, if we need to take it off-line, we can. I'm just trying to think through the bad debt. And I know you've got a paragraph in here on Page 2. You talked about almost $13 million of bad debt recorded in the quarter which if I'm doing my math right, doing the math right, it's about 3.5% of revenue which just seems like a high number. So I guess I'm just really trying to clarify what was included in the second quarter and kind of what's in guidance for the back half of the year?

Yes, fair question. So number one, I hope within these bad debt discussions, we don't lose sight of the broader trend here. Collections are actually doing fantastic. So June within 2Q was the best month of collections that we've seen since COVID started. And April and May weren't far behind is our second and third. And then just looking at July, we're actually off to a better start in July than we were in June at this point in the month. So overall, I don't want any of the kind of bad debt, account receivable, reserve discussion to really mask any of that. And happy to take it offline too and go through any more detail. But that $12.8 million reserve, the way you should think about the implications to either sequential or year-over-year is to think about the incremental change in that number. So it's not the absolute $12.8 million reserve. It's just how much of that changed versus prior quarter as well as how much did we see as a change for former residents that we've previously written off. And so those numbers on a year-over-year basis, we had about a 30 basis point drag on our year-over-year same-store revenue and on a sequential basis, we had about a 90 basis point drag 2Q revenue relative to 1Q. And that's really driven by 1Q. We had an increase in collections in 1Q as we saw better previous trends. I'd say just as you think about the methodology here, we have had a very, very consistent methodology since COVID started in terms of diving into individual resident by resident, understanding their own factors, understanding the regulatory environment they're in and even understanding where they're at in the governmental systems process. So by doing that, we get a much higher degree of conviction on where those collections are going to go over time, pulling them into our forecast and our reserves. And that's why I think you're seeing probably quite a bit less volatility on a quarter-to-quarter and year-over-year basis and you're seeing some of the others at this point in time. So hopefully, keeping the surprises to a minimum here on our side and I think that's really credit to -- we've got some great business managers in the field that are really in the weeds [ph] on this as well as a regulatory team at corporate that hold biweekly meetings going through those details. So -- but if you want to go through more detail on methodology or anyone else does, happy to follow up after the call.

The next question comes from the line of Chandni Luthra with Goldman Sachs.

So, you guys talked about cap rates up 25 to 50 bps and then prices down 10% asset values. How much further do asset values need to come down in order for deals to resume given NOI is still pretty healthy? Like at what point do you think it starts -- it starts to become more aggressive on acquisitions as we think about this environment?

Chandni, it's Joe. So I think when you look at our playbook here the last 3 or 4 years, our playbook has really been contingent on where is our stock price. And can we go out there, find assets that meet the platform requirements, the asset upside requirements, CapEx requirements that we have and can we do that accretively with our share price. And so I think our circumstances and what we need to see on cap rates are very different than the market as a whole. So what we're seeing right now is price discovery taking place for the broader market. And UDR and the REITs are not going to be the incremental price setter in that environment. We don't have a great cost of capital. I would say that while there's a lot of focus on cost of debt and how do these different groups finance themselves, a lot of our investor base spends a lot of time thinking about unsecured rates which are higher at this point in time for the REITs than the secured borrower. So secured borrowers today, a good quality borrower can borrow on a low leverage basis, 4.3% to 4.5% probably based on where treasury rates have moved. And so when you think about where cap rates are, I think that gives you a sense for kind of what the floor may be. So we still got to get through the price discovery phase. But near term, I don't think you're going to see much activity out of us given capital even on the stock price side or what we expose to the market on the disposition side.

That's fair. And so in terms of the remaining forward equity capital that you have that's already locked in, could you talk about potential deployment there? Do you think more DCP opportunities would be the right way to go about that? Like just if you please talk about -- if you could please talk about your capital allocation priorities for the next 7 to 8 months on that forward program?

Yes, it's really identified and penciled in now at this point for opportunities that are already in process and committed to. So if you think about our development pipeline today, we've got about $200 million left to fund there. Within our DCP pipeline, we've got about $80 million left in terms of what you can see on Attachment 11 (B). But then we had a subsequent portfolio DCP deal for about $100 million. So you've got $180 million there plus some additional redev and technology spend. So you've got $400-plus million of committed spend that we're looking at. And so you've got $280 million of funding left to do on those forward equity settlements plus free cash flow, plus we are exposing some assets to market to explore pricing and have potential proceeds coming there. And so we're not looking at that forward equity settlement as new dry powder or new capacity for additional acquisitions, DCP and dev, et cetera. It's really now at this point, penciled in for what we already have committed to.

Our next question comes from the line of Brad Heffern with RBC Capital Markets.

I was curious if you could talk about any change in behavior that you might be seeing from kind of the deal seeking renters on the coast?

Brad, it's Mike. I'll tell you, first and foremost, we alluded to in my prepared remarks, we are seeing some of the renter based turnover just due to some of the rent increases. So I mentioned that 16% of them left because of the rent increases, we were receiving about a 30% increase on new lease growth. That being said, when you look at places like New York as well as Florida for us, it was closer to 30%, 35%. We're moving out because of that. And part of that is due to the concessions we were giving in that market. Last year in a place like New York and then in Tampa as well as Orlando, it's just a little more tucky [ph]. That being said, you can see it on our rent trends. New lease growth is still very strong in those markets. So we're actually refilling with people that are able to pay those rents. Income ratios are staying pretty consistent and what we're seeing on the move-in and move-out side of the equation is very similar to what we saw pre-COVID. So everything feels pretty healthy at this point.

Okay, got it. And then, Joe, is there anything left in the forward guide in terms of rental relief payments? Or has that largely played out?

There is an expectation that we will have additional receipts on government assistance generally in 3Q. We do have a pretty good amount of visibility as to what's an application at this point in time, plus what we received in July. I'd say you probably have $3 million or $4 million of expectations out there for additional government assistance at this point. Yes, there still is the possibility that there's reallocations. And so maybe we have something there that would be an upside surprise over time. There's also discussions taking place in California in the legislative body as to additional support for landlords for residents haven't paid. But we have not factored in any of those items at this point in time.

Our next question comes from the line of John Pawlowski with Green Street Advisors.

Just a follow-up question on external growth. Last 2 or 3 years, acquisitions have been really, really tilted towards the suburbs. So I know suburban assets can't provide a higher going-in yield. But is there just a fundamental call on aging demographics here, going more suburban or any other kind of macro overlay that's forcing your portfolio more suburban?

No, there really wasn't. We want them to remain balanced in urban, suburban, AB, et cetera. It just happens that when we went through all the parameters that we have laid out and we're going through the acquisition process, we want to make sure they were in markets that we had targeted for expansion. We want to make sure that we could deploy at accretive cap rates. We want to make sure the growth profile was better than our own portfolio, the international market growth or everything that the innovation and redevelopment CapEx teams do. So they generally just presented the best opportunities. Some of that has to do with the potting aspect. We've talked a lot about potting aspects. I think when you look at our '21 acquisitions, I think the median distance was about 2 miles. So we did focus a lot on could we get more efficiencies out of an asset because of where it was located and -- we don't get a dictate to the market what comes to market. We had to be a recipient of what we saw coming and took advantage of where we saw it. So I wouldn't take that as a broader thematic or strategic shift. It just happened to be what was available at that point in time that worked with what we wanted to do.

Okay. Second question for Mike. Curious what your team on the ground has told you in terms of June and July kind of leasing trends in tech-centric markets either Bay Area or life science clusters in Boston, San Diego. Any incremental anecdote layoffs and how that's impacting traffic would be helpful to hear?

Sure, John. I think specific to San Francisco first, I pointed to a 5.2% market rent growth as a whole for the company in terms of cumulative sequential market rent growth. When you think about San Francisco, we are around 13% to 14%. So we've actually seen more market rent growth. Concessions starting to abate even more, so about 2 weeks downtown, 2 to 4 weeks in kind of the Mountain View area because of supply. So frankly, we've seen more traffic in San Francisco. Our turnover has been relatively kept in check and we feel better about our market rent today than we had in a long time. And we're actually back to, call it, pre-COVID numbers at this point. And we think we have more of a tailwind, if you will, going into next year because of where market rents have moved just in the last 6 months. San Diego, obviously, we have a very small presence there. Still seeing good trends. Turnover staying relatively low, basically no concessions. And so we're not seeing much of a dip there. And then as far as Boston, as you can see in our release, Boston performed relatively well for us. And we actually expect to see even better numbers come out of Boston over the next 2 quarters.

John, it's Joe. A couple of additional thoughts to because we got the questions back at June NAREIT and we've seen some of the notes on the tech either layoffs or pausing of hiring. I do think it's important that while those get plenty of the headlines, we're seeing the same announcements in other industries as well. And so while job openings overall remain very strong -- job growth remains from, I do think that a little bit of rate of change decelerating we're seeing -- it is more broad-based than just tech where we see the headline. So it doesn't seem that San Francisco is going to bear the brunt of it just because of that or because of the fact that the jobs did get more dispersed in the tech industry throughout the downturn. The other thing anecdotally that we keep hearing is that any of those announcements that you're seeing on the tech side, they do seem to be driven by more of the support. So be it the sales, more the back office, more the help desk, less of the technical higher-paying jobs that are out there. it seems to be what we're hearing behind the scenes. So I do think there's that wrinkle as well that the higher income is still there and so you're not losing that multiplier effect on the high-income jobs.

Our next question is from the line of Adam Kramer with Morgan Stanley.

Yes. I guess first question is just on -- and look, I really appreciate kind of the detail around the earning number one and then kind of expectations for market rent growth and kind of giving us some building blocks for 2023. I guess wondering kind of on top of the 5% earning kind of that 3% or so market rent growth potentially, what else kind of -- may kind of go into the blender, right? What other building blocks might there be, right? And whether that's developments? I know we talked about bad debt earlier, maybe kind of how do you see bad debt playing out? Is that a headwind or tailwind? And maybe kind of help kind of quantify what some of those other building blocks of '23 maybe?

Adam, it's Joe. We talked about bad debt a little bit. I don't think we're going to see a material change at this point in time as we go into '23. We still got some issues with the eviction moratoriums and slow to open courts or pass on eviction processes that make it more challenging. A lot of that's weighted more to the West Coast with Northern California, L.A. and San Diego, all having various forms of eviction moratoriums in place. So I don't think you're going to see a big shift in 2023 numbers coming from that side of the equation. You did mention one of them where we do think we have a lot of upside both next year and in the following years. On the development side, those deals, call it the 4 lease-up deals, roughly $370 million, they have an effective yield right now. It's in the plus or minus 2% as they come into the lease-up phase and come off of cap interest, those are going to go to about a 6.5% yield over the next couple of years. And so you've got $0.05 [ph] of upside there. In addition, on the DCP side, you've seen our new commitments both in 2Q and subsequent I think that will earn in a little bit this year as the funding schedules come -- continue to come in throughout the rest of this year. You'll see the full impact next year. So I think DCP sets up well for us from an accretion standpoint. On the acquisition side, while we just had the Boston deal that we announced this year, we still do have upside remaining on those 2021 transactions. And so those should help as they come into the same-store pool. The other thing that's not necessarily additive but it's less dilutive, I think, for us than peers, is when you look at that maturity profile, we've done a phenomenal job over the last couple of years, extending duration and really knocking out most of our majorities through 2024. We only have $100 million coming up over the next 3 years and that's out in, I think, July of '24. And so we're going to have less reset risk on the debt side. On the flip side, to be fair, we do have G&A and broader expense pressures that we're faced with. So in terms of retaining talent, continuing to add headcount around a lot of our innovation and ESG activities. I think you're going to be due for another tough year of G&A and expense growth. But that said, we do have a lot of efforts on the initiative side that Mike is focused on that should help on both expenses and revenues to help boost some of that revenue and NOI growth in '23 and '24.

That's really helpful, Joe. I guess just a second and quick kind of follow-up question. Just -- and you kind of mentioned earlier, 11% at midpoint for kind of second half of '22 blended rent growth. Wondering kind of within that number, if you're ever kind of say, hey, where do you think kind of the year-end that number sits, right? So I recognize that's kind of the average number. I mean do you think kind of blended rent growth at year-end is still kind of in the positive range? Just trying to think about, right, the comps kind of get increasingly tougher here as we get through the year. So just wondering kind of how you guys are thinking about forecasting kind of year-end blend to rent growth?

Sure. No, Adam, that's a really good question. Something as we think about that 10% to 12% we expect in the back half, again, we have very good visibility on basically 3Q at this point. I mentioned earlier, I do expect anywhere from 12% to 14% growth based on everything I can see today, whether it's been signed or whether it's sitting out there that I noticed, it looks like it's in that 12% to 14% range. So that would lead you to believe that the back half, the fourth quarter, if you will, is around 7%. So we do see some positive momentum as we end the year going into next year and we'll continue to try to drive that higher. Obviously, we've been very focused not only on 2022 but a lot of that's been based on how we can build that earning for '23. So that's kind of where we sit today.

I do think it's important within that. We do get a lot of questions on the affordability dynamic and the wherewithal of the consumer. It's important to keep in context that while these rent increases year-over-year feel relatively large. If you go back to 2019 and look at where income growth has been throughout our markets, income growth has averaged 4% or 5% which is effectively right in line with where rent growth going back to 2019 days earnings with market rents up today, 15%, 16% within our portfolio versus pre-COVID. And so that's why when Mike talks about rent-to-income ratios, we're still holding relatively static in that low 20% range. And so consumers still in a really good position. Wage growth has continued in those mid-single digits. And even when you look at the new movement activity in 2Q, the incomes for those residents relative to the residents that we are applying for last year, those are up high single digits, greater than the market as a whole. So we're attracting a better, higher-quality residence today. Thanks, Adam. We're going to miss Rich, by the way, on these calls.

The next question is from the line of Neil Malkin with Capital One Securities.

Unfortunately, it's not Rich, it's just Neil. So -- okay. Just kidding. First question. That was so funny. Okay. Mike, you talked about, I believe, you correctly in over the next, I think, 2 to 3 years’ time or the last couple of quarters, that number was $20 million. If I'm wrong, let me know? If not, can you just talk about what newer initiatives have been sort of added to the near-term docket? And kind of what do those targets?

Neil. So in terms of that number, the $20-plus million of initiatives, that's still hold steady. So we're going to probably pull about $6 million of that into this year's number. And so that leaves anywhere from kind of $15 million to $20 million of additional initiatives as you think about what's out there and what we can still go after. There's a number of items within that, anything from third-party parking, additional package and placement there. There's identity and fraud detection. We're rolling out AI chatbots, text, voice throughout the portfolio. There's a bunch of vendor consolidation. There's more centralization and sites that we're going to run without individuals on-site on a daily basis. So a lot of initiatives within that $20-plus million. I'd say the big new item that we have been betting with the innovation team here for a while that we are in the process of rolling out over a 3-year timeline is building wide Wi-Fi. And so something that we've looked at for the last 5 or 7 years. And of course, there's questions as to are we late to the game? Why have we not done the bulk Internet in the past when others have on both Internet and cable? I think there's a number of things that actually have changed over time for us that make it more interesting for us to roll out today. So number one, this is not going to be a cable and Internet package, we are looking at internet only. We don't view those pass packages that include cable as being beneficial to the resident. The contract duration that we are looking at is much shorter than the typical contract. Typically, those are 7- to 10-year contracts. We're looking at a 5-year contract to present us with more…

I really appreciate that. I want Tom, you've been pretty quiet. Maybe a general question I've asked you a couple of times. You think about where you guys have been positioning incremental buys kind of seeing what the markets have bared out in terms of rent growth, both on a year-over-year and a COVID-to-date basis. You factor in the hybrid model appearing to be a long-term paradigm and people moving to states with less regulation, less issues, more affordability, the list goes on, right, social issues, et cetera. I just wonder now that you had a fair amount of time to kind of access out how that kind of looks and potentially a new framework, if at all. Are you -- is the company maybe taking a different stance on how you position the portfolio? I understand diversification is important to you guys. I get that. But based on everything that we know or since 2020, do you feel like an incremental dollar is better spent in Sunbelt market? How do you kind of see that, that we've had some time to digest that?

Neil, a very good question and a very thoughtful one in a perspective of what have we really learned from COVID in the last 3 or 4 years. And what I think we learned still applies to the future which is diversification is your friend in managing risk and cycles, political, environmental, whatever they might be. And so you're probably right, we will always continue to focus on it. What I'm grateful for is our investment, the end technology and portfolio management and data. And Chris and the team continue to pour through it, find better data sets to analyze trend lines where things are. And I think the conclusions of that, we continue to share with the investment community every conference. And what they point to is we're in the right markets. Things are going in the right direction. And if we continue to operate, grow our margin, we're going to have cash flow growth and the enterprise is going to continue to prosper. And I think we'll stay on that template. I think it's challenging as we've all seen to lift portfolios and shift them. And I had 10 years of experience with that and it's hard to get earnings growth and expansion. And so we're very comfortable with the portfolio. We probably won't see a lot of shifting of markets. We continue to always look for new opportunities. And that's a long-winded answer. We like our hand at the table and we're going to just keep playing it and continuing to expand our innovation and margin.

The next question is from the line of Juan Sanabria with BMO Capital Markets.

Just a question on the cost side. Is there any change in the magnitude of growth on the cost, either on the controllable or non that you're seeing between Sunbelt and coastal markets that is worth noting?

Juan, I think worth noting, I would say in the Sunbelt we're seeing a little bit more pressure as it relates to some of the R&M side of the equation as well as the personnel. And I think a lot of that has to do with the supply that's down there. So typically, when that happens, it's pulling some of our service employees from us and we're having to pay a little bit more to retain our talent and we're seeing it just in terms of some of the third-party costs being pushed to us as well. So that's where I've seen a little bit of pressure on the controllable side but nothing really else material when you think about just urban, suburban, AB, it's pretty consistent.

Juan, I think you can extrapolate that on the controllable side a little bit to the noncontrollable over to real estate tax as well. We are seeing more pressure when you go into some of our Sunbelt markets, be it Texas, Florida, Richmond, Virginia. We are seeing more pressure on the tax side there relative to some of the coast. Similarly, if you come full cycle back to discussion earlier on the development side, you are seeing more inflationary pressures really driven by labor down in the Sunbelt as well there. So a little bit more pressure on cost and development within the Sunbelt too. So broadly speaking, Sunbelt seeing a little bit more pressure.

And one more for me, just on the whole discussion about assumed blended lease rate growth in the second half of the year and you guys have given phenomenal color. Any offset we should be thinking about as you drive pricing on a continued occupancy kind of get back with a bit higher churn? Is that going to stay stable or can be ticked up for the balance of the year?

Another good question. The way we've been looking at that and trying to communicate is we've been comfortable with, call it, about 30 basis points of occupancy coming down so. We typically run just over 97% today. Today, we're closer to 96% -- 98% to 97%. Again, it's a good trade, if you think about 30 basis points for us, it's 150 units per month. And we have been targeting over the course of 2Q and 3Q, we run it this way, try to push out and see what we can get. We do expect vacancy loss of approximately $2 million. That being said, we do think we get around 1% to 1.5% pickup in rents. That over the course of 12 months for us and our rents is over $12 million. So it's a good trade and again it's one that we've been focused on doing to try to drive next year. So 2023 is in very good shape. That's kind of where we're at on that.

The next question is from the line of Joshua Dennerlein with Bank of America.

So it's interesting, you named Patty as a Chief ESG Officer. Just be curious where her focus will be in the first 12 months on the ESG front?

Josh, good question and very excited that Patty is joining us. So if you had a chance to look it up and take a look at her background, absolutely phenomenal experience in the areas of ESG, sustainability, DI, talent development. So there's a lot of areas that she's going to be able to help. She's been at some pretty big dynamic organizations in the past. And so I think in near term, there's definitely a focus on our -- on the ESG side. So we've committed, as you know, to SBTi. And so it should be helping us with that, along with a number of other individuals on the ESG Committee working through our SBTi strategy and the ultimate communication execution of that I think there's a good opportunity from a workforce diversity standpoint. We do have DI initiatives in place for the executive team of compensation tied to it, so making sure that we continue to drive those efforts to enhance and diversify our workforce. And on the talent development side, just continuing to extend the HR strategy that's all in place, making sure we get good high-quality talent in here develop over time and bring them up throughout the organization. So she's got a pretty phenomenal skill set and so excited to see what she's going to bring to the table and bring a new voice to us.

Josh, this is Toomey. I might add that we've got an 86 last year on GRESB, led the industry, very proud of that. But the time to get better is when you're on top. And I think Patsy can drive us to another level.

The next question is from the line of Nick Yulico with Scotiabank.

It's Daniel Tricarico on for Nick. I'll keep it brief. I don't believe you started any new developments in the quarter. How should we think about the development start pipeline over the next, say, 12 months? And how are you underwriting new development yields today versus cap rates?

Correct. We did not have any new starts in the quarter. So we've got the $700 million pipeline, about $200 million left to fund. But really, 4 of those deals out of the 7 are coming through the lease-up and effectively fully-funded. And so you're really down to a relatively de minimis amount of risk when you think about what's in process today. In terms of new starts in 3Q, we're going to have Newport Village which is a densification play, almost 400 units, about $155 million, $160 million development deal in Suburban D.C. And so that will get in the process in the second half. Beyond that, we've got really good optionality as we think about the pipeline. We do have a broader strategic objective to get back to plus or minus $1 billion pipeline which sizing-wise is only about 3% or 4% of enterprise value. So we do want to get back there over time but that's going to be very much contingent upon where do we look from a sources and uses, macroeconomic environment and cost of capital perspective. So we've got the optionality when you look at Attachment 9 with a number of land parcels that we'll be able to start next year but those are going to be contingent on all those other factors. And so it's hard to say that we're going to move forward on exactly those same timelines as we previously planned but we do have that optionality.

The next question is from the line of Haendel St. Juste with Mizuho.

So, you say -- I think, Mike, you said that move out due to rent levels and certain some markets were in the 30% range or about 2x the portfolio. Can you share a bit more about where that is happening? And your comments made it sound like this is largely because of deal seekers might rotating out? Have you been able to backfill with higher-income tenants?

Yes, Haendel. So that's what I was mentioning. If you look at a place like New York, for example, our renewal growth of 21%, we were pushing pretty aggressively. And that was a case where people were getting more of a deal over the last couple of years with concessions. We burn off of those. We're not offering concessions in that market anymore and we've continued to push market rents. So we had the strategy in place since the beginning of the year to see what we could get on that we think it's played out. We did see turnover tick up to some degree. But again, we were able to trade out at, call it, 30% on the new lease side. So it's a good trade for us. Places like Florida, that's where we saw it as well, where we'd start to push and this is more of a function of we pushed last year. We're starting to anniversary off that and seeing it again this year and some residents just couldn't take that increase. And again, we were able to backfill with higher new lease growth and what we're seeing in terms of rent to income ratios, they're relatively flat. So we are seeing people with higher incomes, the ability to afford it going forward and we think that we have good prospects as we move forward.

Okay, that's helpful. I appreciate that. I guess we're all trying to figure to a degree of affordability is an issue. Is it your sense that pricing power is still fairly even across your Sunbelt and coastal markets and then maybe how does the rent income ratio within those 2 regions compare today maybe versus history?

Sure. With that question, I'd probably point more towards our loss to lease. And you've seen us in previous pitches, we've thrown out there where we're at by region. I would tell you, when I mentioned 8.5% across the portfolio today, it's pretty consistent. So we're starting to see a little bit of an increase in that loss lease in places like San Francisco, given we've been able to push market rents. But again, it's pretty consistent across the board. I haven't seen much of a change there as far as that goes.

Any color perhaps on the rent income? Is there a meaningful difference between coastal and Sunbelt?

Minor, not very material. So we see a little bit more of an increase, if you will, a place like Monterey Peninsula for us. Historically, that's run in the high 20s. It hasn't changed to some degree. Places like the Sunbelt around 23% to 25% today. New York is just under that. So they're pretty consistent across the board.

The next question is from the line of Anthony Powell with Barclays.

You mentioned a few times that you're attracting a higher income tenants as you seek to raise rents. Do you think these tenants may be newly priced out of the home buyer market? And if it becomes easier to buy a home, would these be some of the first tenants that may move out for home ownership?

Not necessarily because another thing that we track and we've been looking at is the average age of our residents and that's actually ticked down to some degree. So while it could happen? Maybe. But we feel like we're in a pretty good place. And I mentioned in my prepared remarks, we've seen around 8% moving out to buy homes. So we're in a pretty good place today compared to historical averages.

The next question is from the line of Tayo Okusanya with Credit Suisse.

My question has actually been answered.

There are no further questions in the queue. I'd like to hand the call over to Mr. Toomey for closing comments.

Thanks for your time and interest in UDR. We started off the call with a quick summary, the strongest operating environment in my tenure, 16% FFOA growth year-over-year, a second guidance increase this year. We appreciate the questions but the big picture is our consumer is in great shape and we've reloaded our rent roll. We have pricing power and we continue to innovate and expand our margins. And it couldn't be a more exciting time to be in this business. The prospects look great today and in the future. So with that, I'll close and say we look forward to seeing you in the September conference season. and wish that all of you take care.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.