Jul 31, 2024
Operator
Hello, and welcome to UDR's Second Quarter 2024 Earnings Call [Operator Instructions]. As a reminder, this conference is being recorded.
It's now my pleasure to turn the call over to Trent Trujillo, Vice President, Investor Relations. Please go ahead, Trent.
Trent Trujillo
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 Web site ir.udr.com.
In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Statements made during this call, which are not historical, may constitute forward-looking statements.
Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC.
We do not undertake a duty to update any forward-looking statements. When we get to the question-and-answer portion, we ask that you be respectful of everyone's time and limit your questions to one plus a follow-up.
Management will be available after the call for your questions that did not get answered during the Q&A session today. I will now turn the call over to UDR's Chairman and CEO, Tom Toomey.
Tom Toomey
Thank you, Trent. And welcome to UDR's second 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 Kantor; and Chris Vans Ens, will also be available during the Q&A portion of the call. First half results exceeded our initial expectations provided back in February due to ongoing solid fundamentals and the core operating strategies we continue to utilize to drive strong same store and earnings growth.
Positive fundamental drivers for our industry include, first, year-to-date employment growth of approximately 1.3 million jobs has well outpaced initial full year consensus expectations. Additionally, year-to-date household income growth has remained robust at approximately 5%.
Taken together, this has driven strong demand for housing while also reinforcing healthy affordability metrics. Second, more than 250,000 newly delivered apartment homes were absorbed nationally during the first half of the year, a near two decade record.
Adding to that, total housing deliveries appear stable through the end of the year, and development starts continue to decline to levels below historical norms. This dynamic 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, the best level of relative affordability in two decades. These fundamental trends, combined with our operating tactics that have improved resident retention, led to revenue and expense growth outperformance in the first half of 2024.
Drivers include more robust pricing power, higher occupancy, improved in the month rent collections, higher ancillary income growth, lower resident turnover and lower turnover related expenses than originally expected. In all, this led us to raise our full year FFOA per share guidance for the second time this year, while also increasing our same store growth expectations in yesterday's release.
Mike will provide additional details in his remarks. We feel good about the year-to-date results and the opportunities ahead of us in the second half of the year.
However, we also remain cognizant of the slowing growth rate in the recent employment data and the effect that may have on pricing in the face of still elevated new supply through the rest of 2024. Moving on, we continue to build on our position as a recognized ESG leader, with UDR recently being named a 2024 Top Workplace winner in the real estate industry.
This achievement reflects the engaging employee experience we have built and solidifies our stature as an employer of choice. Key to our success is an innovative and adaptive culture, and this recognition is one that all our stakeholders should be proud of.
Big picture, I remain optimistic about the long term growth prospects of the multifamily industry and UDR's unique competitive advantages that should enhance our relative results. We have a strong culture that empowers our associates to deliver best-in-class service to our residents and create outsized value.
With that, I'll turn the call over to Mike.
Mike Lacy
Thanks, Tom. Today, I'll cover the following topics; our second quarter same-store results, early third quarter operating trends, our improved full year same store growth guidance, including underlying assumptions and regional operating trends.
To begin, second quarter year-over-year same store revenue and NOI growth of 2.5% and 2% respectively were slightly above our expectations. Quarterly sequential same store results also outpaced initial forecast.
These results were driven by, first, 2.4% blended lease rate growth, which was driven by renewal rate growth just shy of 4% and new lease rate growth of 50 basis points. New lease rate growth improved by 300 basis points versus the first quarter as concession stabilized and demand increased, which resulted in improved pricing power.
Second, 47% annualized resident turnover was 300 basis points below the prior year period and our best second quarter retention in more than a decade. This has enabled us to increase renewal rate pricing through at least August and has led to more favorable blended lease rate growth.
Third, occupancy remained strong at 96.8%, supported by healthy traffic and leasing volume. New York, Boston, Washington, D.C.
and Seattle, which collectively constitute 40% of our same store pool or standouts, averaging higher than 97% occupancy during the quarter. And fourth, other income growth was nearly 9% and was driven by our continued innovation along with the delivery of value add services to our residents.
Shifting to expenses. Quarterly year-over-year same-store expense growth of 3.7% came in better than expectations and was primarily driven by reduced repair and maintenance costs as well as insurance savings.
Repair and maintenance growth of less than 1% was partly due to our improved resident retention and having 500 fewer unit terms than a year ago while insurance savings of nearly 5% was driven by lower claims activity. Moving on, core operating trends have remained resilient in July and key metrics have largely followed typical seasonality.
First, July blended lease rate growth is expected to be in the mid 2% range, which is slightly higher than June results and follows normal historical sequential rent growth trends. New lease rate growth is slightly negative on average while we have had success increasing our renewal lease rate growth closer to 5% from 4% in the second quarter.
In terms of relative performance, the East Coast is showing the most strength with blended lease rate growth of approximately 4%. This is followed by the West Coast at 3% on average and the Sunbelt at approximately negative 1%.
Based on current trends, we expect East Coast leadership to persist through at least the remainder of the third quarter. Second, resident retention continues to compare well against historical norms and July will represent the 15th consecutive month our year-over-year turnover has improved.
Relative affordability compared to other forms of housing is a benefit to the apartment industry in total. Given the level of home prices and mortgage rates, the average cost of owning a home across UDR markets is nearly 5,500 per month.
By contrast, the average rent for UDR apartment home is approximately $2,500 per month, thereby creating annual shelter cost savings of $36,000. This disparity has led to a record low level of our residents moving out to buy a home.
Furthermore, because of our ongoing customer experience project, our resident retention over the past year has improved by approximately 210 basis points relative to the peer group average. This is a testament to our team's focus and execution on our innovative data driven approach to customer service.
Ultimately, improved retention should drive better pricing power, higher occupancy, increased other income, reduced expenses, lower CapEx and margin expansion. We are still early in the innings of capturing these benefits but believe the incremental opportunity is in the $15 million to $30 million range.
Third, occupancy remains high but has trended slightly lower to 96.2% to 96.3% in July due to elevated new supply coming online and typical seasonal operating trends. Markets facing heavy supply, including Nashville, Dallas and Tampa, 16% of our NOI, have seen occupancy decline by approximately 100 basis points on average compared to the second quarter.
Conversely, occupancy remains in the mid to high 96% range on average across markets facing less supply, such as New York, San Francisco and Orange County, which make up 26% of our NOI. Strategically, we anticipate regaining portfolio occupancy later in the third quarter as we tactically adjust our operating approach ahead of a seasonally slower leasing period.
And fourth, other income continues to grow in the high single digit range in July, similar to what we achieved in the first half of the year. As a reminder, other income constitutes roughly 11% of total revenue.
We remain pleased with the trajectory of other income initiatives, such as the rollout and penetration of building-wide Wi-Fi as these contribute significantly to incremental same store revenue growth. Based on our results for the first seven months of the year, we raised our full year 2024 same store growth guidance in conjunction with yesterday's release.
We are encouraged by the resiliency of various forward demand indicators such as year-to-date job growth and wage growth, but we remain somewhat cautious given there’s potential for macroeconomic volatility in an election year combined with elevated supply deliveries in the back half of 2024. To provide details on our guidance increases, starting with same store revenue growth, we raised our midpoint by 50 basis points, resulting in a new range of 1% to 3%.
The primary building blocks to achieve the 2% midpoint include the following. First, our 2024 earning of 70 basis points.
Second, portfolio blended lease rate growth is forecast to be approximately 130 basis points in 2024. This represents a 60 basis point increase compared to our initial guidance.
Given blended lease rate growth of approximately 180 basis points through the first seven months of the year, this implies a deceleration to 60 basis points on average for the remaining five months of the year. Using a midyear convention, our full year blended lease rate growth expectation should add about 65 basis points to 2024 same store revenue growth, reflecting a 30 basis point improvement versus our prior expectations.
Underlying our full year blended rate growth forecast are assumptions of 3.5% to 4% renewal rate growth and approximately negative 1% new lease rate growth. Third, we expect the combination of occupancy and bad debt to be roughly flat year-over-year in 2024, in line with our prior expectation.
And fourth, innovation and other operating initiatives are expected to add 70 basis points to our 2024 same store revenue growth, which is an increase of 25 basis points versus our prior guidance. The bulk of this growth should come from the continued rollout of property-wide Wi-Fi initiatives along with a variety of other property enhancements.
3% of high end of our same store revenue growth range is achievable through improved year-over-year occupancy, additional accretion from innovation, higher blended lease rate growth or a combination thereof. Conversely, the low end of 1% reflects full year blended lease rate growth of approximately 50 basis points, some level of occupancy loss and the moderation in other income generated by our innovation.
Moving on to same store expense growth. We lowered our midpoint by 25 basis points to 5% with the full year range now at 4% to 6%.
The improvement was primarily driven by constrained insurance and repair and maintenance expense growth. As a reminder, same store expense growth of 7.5% in the first quarter was elevated due to comping off of a onetime $3.7 million employee retention credit we realized at the beginning of 2023.
Absent this factor, we would expect normalized same store expense growth for the full year to be in the low 4% range or approximately 80 basis points lower than our [updated] midpoint. Turning to regional trends.
Our coastal results have exceeded our expectations while our Sunbelt markets are largely in line. More specifically, the East Coast, which comprises approximately 40% of our NOI, was our strongest region in the second quarter, and Washington, D.C.
was our best-performing market driven by strength in Northern Virginia. Second quarter weighted average occupancy for the East Coast was 97.1%, blended lease rate growth was 4.7% and year-over-year same-store revenue growth was 3.8%.
With continued healthy demand and relatively low new supply, we expect this region to be our strongest throughout the rest of the year. The West Coast, which comprises approximately 35% of our NOI, has performed better than expected year-to-date but stabilized somewhat in the second quarter following tremendous momentum in the first quarter.
We are encouraged by various employers more strictly enforcing return to office mandates as well as increased office leasing activity from technology and AI companies but are also cognizant of corporate relocations that influence job and wage growth. Absolute levels of new supply remain low at less than 2% of existing stock on average across our West Coast markets, which we expect will lead to a more favorable supply dynamic in the coming quarters.
Lastly, our Sunbelt markets, which comprise roughly 25% of our NOI, continue to lag our coastal markets. Year-to-date performance was in line with our original expectations through the beginning of June, at which time we began to see some pricing deterioration due to elevated new supply and the concessions that came with it.
We tactically decided to hold grade to best set up our rent roll for future quarters, which resulted in occupancy drifting lower. While our Sunbelt markets broadly have more robust job growth than our coastal markets, we remain cautious on the region in the near term, given the very high absolute levels of new supply coming online.
To close, our coastal markets, which comprise 75% of our NOI have performed above initial expectations. While our Sunbelt markets, which comprise 25% of our NOI, are largely in line with expectations.
Our diversified portfolio enables us to be surgical with regard to how we operate each market and each asset, allowing us to leverage the strong fundamentals of our industry. This, coupled with continued innovation that will further expand our operating margin over time, maximizes revenue and NOI growth.
My thanks go out to our UDR associates nationwide for your dedication towards meeting the challenges we face head on as we continuously innovate to drive strong results. I will now turn over the call to Joe.
Joe Fisher
Thank you, Mike. The topics I will cover today include, our second 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 second quarter FFO as adjusted per share of $0.62 achieved the high end of our previously provided guidance. The $0.01 per share sequential increase was supported by strong same store NOI growth, driven by higher than expected blended lease rate growth and lower than expected expense growth across both controllable and noncontrollable categories.
Year-to-date operating results have exceeded our initial expectations, which led us to raise our same store and FFOA per share guidance ranges. Our new full year 2024 FFOA per share guidance range is $2.42 to $2.50 with a midpoint of $2.46.
Since providing initial guidance in February, we have raised FFOA per share guidance twice by a cumulative of $0.04 per share or approximately 2% and have improved the midpoints of our same store guidance ranges. Current trends suggest upside to our midpoint but we believe a cautious approach is prudent given the risk of elevated new supply, election uncertainty and macroeconomic volatility.
Looking ahead, our third quarter FFOA per share guidance range is $0.61 to $0.63. The $0.62 midpoint is flat sequentially, which is similar to our historical average earnings results from the second to third quarter and is due to minimal expected changes across NOI, interest expense and G&A.
Next, a transactions and capital markets update. First, during the quarter, we completed construction of 101 North Meridian, a $134 million, 330 home community located adjacent to another UDR community in Tampa.
Due to robust demand, the community is already 40% occupied as of today, which is twice the level we expected at this point in it's lease up. When combined with attractive rental rate pricing, the yield on the project is trending approximately 75 basis points ahead of underwriting.
With the completion of this community, we have no active development projects. However, we are evaluating up to four potential starts in the next 12 to 18 months.
Second, subsequent to quarter end, we went under contract to fund a $35 million preferred equity DCP investment at a 10.75% rate of return on four communities located in Portland as part of their recapitalization. Each of the four communities has achieved stabilized occupancy and is generating positive cash flow.
Therefore, the risk profile is lower than a typical new development DCP project and positive cash flows allow approximately two thirds of our contractual return to be paid in cash. And third, subsequent to quarter end, we received an approximately $17 million paydown on our preferred equity DCP investment in Vernon Boulevard located in Queens, New York.
In conjunction with the paydown, we agreed to lower our rate of return from 13% to 11% to reflect the reduced risk in our investment due to the development being completed and a more secure positioning in the capital structure. 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 June 30; second, we have only $112 million of consolidated debt or approximately 0.5% 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 refinancing risk. Our proactive approach to managing our balance sheet has resulted in the best three year liquidity outlook in the sector and the lowest weighted average interest rate amongst the multifamily peer group at 3.4%.
And third, our leverage metrics remain strong. Debt to enterprise value was just 28% at quarter end while net debt to EBITDAre was 5.7 times.
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] Our first question is coming from Eric Wolfe from Citigroup.
Eric Wolfe
Can you talk a bit more about what you saw in June and July in your coastal markets versus the Sunbelt? I was specifically wondering about how much occupancy fell in the Sunbelt versus the coastal markets?
And if that's impacting your pricing strategy for both going forward?
Mike Lacy
So let me try to capture all that. First and foremost, one month is not a good trend line.
I tend to look at it over 90 days. During peak leasing from May to June through July, we actually averaged right around 2.5% blend, which was 100 basis points over our original expectations.
Second to that, May was so strong for us that we actually pushed our market rent, pretty much double compared to what we see pre-COVID, right around 2% versus 1% on a month-over-month basis. So very strong trends led us to push our rents that led us to pushing our renewals higher through 3Q, which is helping to offset new lease growth.
So to that point, I spend a little bit more time just on our renewal strategy and how it's playing out before I give you some of the numbers. But we are sending out about 5% through September at this point.
We typically achieve between 20 and 30 basis points of what we send out. And I'll tell you our strategy around getting more aggressive by about 100 basis points from the first half of the year was really stemming off of our customer experience project, just given the fact that we've had closer to 900 fewer move outs through the first six, seven months of the year and our turnover were down 3% year-over-year, along with the fact that we change the trajectory of our relative basis versus our peer group by over 200 basis points.
We wanted to test that pricing strategy and right now, it feels like it's playing out. To your point on the occupancy, we did lose a little bit of ground over the last 30, 60 days.
We've seen that stabilize as of [late] and I think it's important to size it for us. When you have, call it, 10 bps lower occupancy, that's 50 homes, which is approximately $100,000 during the month.
So while it's down a little bit, it's not material and we're starting to see it stabilize into August. To your point just on some of the stats around the regions, what I would tell you is the East Coast in July still hovering around 96.5%, the West Coast and the Sun Belt, a little bit lower, right around 96.%.
But on the blends, we are still seeing 4% growth on East Coast, 3% growth on the West Coast and the Sunbelt is -- had somewhat stabilized in that negative 1% range similar to what we saw in May, June and throughout the second quarter. So overall, trending kind of as expected.
Eric Wolfe
And then I guess, based on your guidance for the full year, it seems like you're sort of guiding around 0.9% or something around there for the back half of the year, which is I think, pretty close to your original guidance. I mean, would you say that's more of a conservative placeholder or do you think it's sort of reflective of a more conservative position, just given some of the things you mentioned?
Just trying to understand what's going into that back half estimate for blended rent growth?
Joe Fisher
Maybe just to lead off to how we approached it. Versus original guidance, we had taken kind of consensus estimates, layered in our bottoms up forecast to come up with that initial forecast.
I think, since that period of time, we've clearly seen jobs coming better, wages coming better, GDP come in better, supply has been about as expected with developers acting fairly rational from a concessionary perspective. And then the relative affordability piece, I think, is one that has been clearly a nice tailwind for us from either a move outs to buy or just capture rate on new household formation.
So that's really what's driven kind of our year-to-date market rent growth. We're seeing an effective market rent growth on a year-to-date basis, up about 4%, which is under 200 basis points better than we expected originally.
So that's what drove those blends in the first seven months. So as we approach kind of back half of the year and full year guidance, the way we did it was really just take what was put in the bank for the first seven months.
So what we knew it happened here through July updated guidance for that impact, and we really want the back half assumptions alone. And so the implied number for the last five months of the year is only about 60 basis points in blended lease rate growth.
Obviously, Mike mentioned where we're sending out August renewals. We'll talk to the street once we get more visibility on news as we go into September, but we have factored in some conservatism on that front under the view that you still have supply out there, still have unknowns on the macroeconomic front and on the election front, and we typically see some degree of seasonal slowdown anyway on blends as you go into the back half.
So everything we're seeing to date tells us we have continued momentum with that kind of mid-2s blends, but I think it's still prudent to be a little bit conservative on that front as we approach guidance and then update as we move into the back half of the year.
Operator
Next question is coming from Steve Sakwa from Evercore ISI.
Unidentified Analyst
This is Sanket on for Steve. We had a question around -- I think you guys raised the guidance for DCP funding from 0 to $15 million.
Can we expect more on this front in the back half of the year?
Joe Fisher
So that $15 million is really the net of a couple of items. We originally had zero in there.
I think everybody saw in the press release, we did the $35 million investment in a recap portfolio in Portland, which Andrew can give you more details on here in a second. We also got the payback on Vernon, which is part of a bigger payback for both us and our partner, which we can provide some more color on as well.
And then we have a couple of other cash pays and small prepayments. So that nets to that $15 million.
As we look out to the rest of the year, we really don't have much coming up on the maturity front. I think our next maturities from a senior loan perspective were the first part of '25.
So that would be the first action we have from additional prepayments or potential extensions there. And on the investment front, really no major discussions right now, but not to say that we aren't looking.
We're just not far enough along to really commit to increasing guidance on DCP deployments. But as we think to next year and assume that we have additional prepayments or payoffs, I would expect us to be active on that front and looking to deploy that capital even if it takes place ahead of time.
Andrew Kantor
As it relates to the DCP activity for the quarter, Vernon, which is a DCP deal that we have in the Astoria West neighborhood of New York, originally funded it in June of 2022, we had a partner that was originally pari passu with us in that transaction who had invested $15 million next to our $40 million. At the time of the redemption, their accrual was $10 million and their entire amount was fully refunded.
So $25 million, that's in addition to our $17 million that was refunded. And as Joe said, this is now a -- this is a recapitalization of a completed and stabilized development.
The property is 95%, 96% occupied. And then on very similar situation we had on the Portland DCP recap where we invested in four stabilized assets, one of which will close shortly but that as well as in both of these new DCP investments are about two thirds of our accrual will be paid current.
Operator
Our next question today is coming from Austin Wurschmidt from KeyBanc Capital Markets.
Austin Wurschmidt
I wanted to hit back on the July, more specifically, new lease rate growth trends. Mike, you had highlighted that Nashville, Dallas and Tampa had -- were primarily driving down occupancy.
But I'm curious if these markets also drove the moderation in new lease rate growth or were there other markets or regions that have seen a similar degree of new lease rate growth moderation into July versus what you saw in May and June?
Mike Lacy
What's interesting, obviously, from May to June, we saw a little bit more of a deceleration in blends and then coming through July, we saw that uptick a bit. So really, the way I look at it is from May to July, we saw close to 100 basis points, let's call it, 50 to 100 basis points across all regions with the Sunbelt being a little bit weaker than we thought over the last 30 days or so.
But again, it's been pretty stable as we've gone towards the end of the month and we're still hovering around negative 1% today. In terms of the new lease growth, we're still seeing negative 5% to negative 6% down in the Sunbelt where we're seeing upwards of 2% growth in the East Coast, 1% on the West Coast.
So on an absolute basis, still strongest coming out of the coast, a little bit weaker in the Sunbelt as expected.
Joe Fisher
Just to follow up on that, too, as you think about the occupancy number, a little bit of insight beyond just the pricing strategy that Mike has talked about. We've talked a lot in the past about our fraud prevention efforts and kind of the $25 million to $50 million opportunity that bad debt represents for us over time.
We've talked about starting to roll out in pilot some new AI platforms on both income and ID verification. We're also trying to be a little bit more robust and disciplined on our deposit strategies on our credit scores around the portfolio.
So as we continue to ramp up that we are seeing some of our denial rates increase, which will temporarily does impact occupancy to the negative. It's not necessarily reflective of traffic, which still continues to be good, apps continue to be good.
It's just that we're kicking more of those individuals out of the system, taking the hit today on occupancy. But we do believe longer term that's going to get us better residents in place that stay with us longer and continue to pay.
So it's a longer term trade off to take the occupancy hit today, get the better numbers in the future. Although, I'd say for bad debt, we have not factored that into our numbers.
We're still assuming in guidance that we’re plus or minus kind of flat on a year-over-year basis, even though we're trending slightly ahead at this point in time.
Austin Wurschmidt
And you partially, I think, you answered my next question, which is really around the size of the supply and concessions impact in July. I was curious about the slowdown in traffic and any impact to these near record absorption levels we've kind of heard about throughout the first half of the year.
But maybe on top of that, I guess, how have concessions trended can you kind of quantify that, and then how does that stack up versus last year?
Mike Lacy
Austin, I think that's a really good point. I think just stepping back a little bit, just thinking about the consumer and how healthy they are, a few stats that we typically look at in addition to concessions, I would tell you, first of all, not seen doubling up.
So we still have 1.8 residents per home. We've seen the single occupant go up about 1.5% to 42% of our homes.
And we're seeing a stable rent-to-income ratio across the board at 22%, with places like Boston, Dallas, DC, San Francisco and Tampa, even down a little bit, where places like Seattle are up just slightly, given the fact that we've been able to push rents so much. But to your point on concessions, we're right around half a week today, which is pretty consistent where we were pre-COVID.
It's kind of normal steady state today, obviously, with the Sunbelt being a little bit higher and then the Coast being next to nothing.
Operator
Your next question is coming from Josh Dennerlein from Bank of America.
Josh Dennerlein
Mike, I just wanted to follow up on some comments you made in one of your answers to a question. It sounds like you feel more confident on pushing rate because of your platform initiatives related to like data on the customers.
I guess, when did you kind of start pushing a little bit harder than you would have in the past? And then how do you think about the ability to kind of continue pushing like rate -- renewal rate even harder from here in the future?
Mike Lacy
It goes back to what I was saying with what we're seeing in May. And so when we had very strong dynamics in the marketplace, we're able to start driving our market rents up, again, about 2% compared to normal historical averages of 1%.
That gives us more confidence to get a little bit more aggressive as we started to price our renewals 60, 90 days out. And so that's what you're seeing play out in front of us today.
And in addition to that, I think it goes back to what we're seeing with that customer experience project. A lot of that work has been done over the last year or so.
And what we looked at is when we compared ourselves to our peers on a relative basis, we were about 200 basis points below them. Over the last six to nine months, we've actually changed that trajectory.
We're closer to 50 basis points above them. And so it gave us the confidence to continue to try to push in there and test a different thing, if you will, test out our pricing strategy, see if we can get a little bit more aggressive on renewals.
Again, I feel like it's playing out today. We'll know more here over the next 30, 60 days, but it feels good.
Josh Dennerlein
And then just -- what is it you're above peers on or you were below and now you're above? What was that?
Mike Lacy
So turnover, when we compared ourselves against the peer group and turnover, we were lagging the group, and that's what led us to really dive into the customer experience project, to try to change that trajectory. And we believe that we were on to something, we see it playing out in front of us but we also know that we have a long ways to go.
And we think that this could potentially continue to drive, call it, $15 million to $30 million in value over the next couple of years by holding a sustainable lower turnover than the peer group going forward.
Operator
Next question is coming from Jamie Feldman from Wells Fargo.
Jamie Feldman
So I appreciate your commentary on -- you talked a lot about the guidance for kind of top line revenue, but also your comments around you've got a lot of uncertainty, the election, the consumer rates. What are the other line items where you would say in your guidance, you think you have the most room or you're the most conservative on or if things go well and things don't really turn downward, you could actually see meaningful uptick?
Mike Lacy
Jamie, that's a good question. I'll tell you where we're feeling pretty good today and you could see it in our guidance.
Expenses, and I'm seeing across the board. It's not just on our controllables, it's also on the noncontrollables.
And so when we went into the year, we had a midpoint of around 5.25% and today we're closer to 5%. Based on everything we're seeing with the customer experience, the fact that turnover is down, we're getting a little bit more aggressive with our turn vendors, people on site that do a lot of the work for us.
We're able to sharpen our pencil there. So we're continuing to see strength on that line item.
And so I'd say that's probably the biggest one for me.
Joe Fisher
And I think real estate tax as well, when you look at what we came into the year at, we were expected more in the 4% to 5% range. Today, depending on what [Technical Difficulty] the appeal activity as well as I think we have some opportunities in Florida to improve our numbers based on values and rates.
We think we could trend that real estate tax number down into 3% to 4% range. We've not fully factored that into our expectations yet because there's still unknowns out there but I think real estate tax still is an opportunity for upside.
Insurance, we've had really good year-to-date activity from a claims perspective. A lot of that driven by expense saving ROIs, doing a lot of asset quality work and then a little bit of luck just coming off of higher claims activity, but we've had really good success on a year-to-date basis there.
We have not factored that into continuing into the back half to the same degree. But if we see that trend continue, we probably have some upside there in expenses as well.
So expenses is probably a good variable for us on a go forward basis.
Jamie Feldman
And then, I guess, just kind of sitting where we are in the cycle, everyone's talking about very low level of starts. I guess that means a stronger '26, '27 across all markets, rates pulling back a little bit.
We'll see what spending looks like from the different candidates out there if rates stay low. But you talked about how strong your balance sheet is.
How aggressive do you feel like you need to be right now on the investment front to kind of catch the early part of the cycle or do you think you can be patient? And just what does the landscape look like, whether it's from your perspective or competing buyers' perspective on the macro picture and putting capital to work?
Joe Fisher
Maybe I'll kick it off just from a high-level perspective, how we're thinking about capital and then toss it to Andrew, he can kind of talk about what we're seeing in the market with buyers and sellers and cap rates today. So I'd say right now, it's a continued capital light strategy for us.
We don't have the cost of equity that's compelling today. We don't have a lot that we need to do either on the debt maturity side or the development commitment side today.
From an external growth perspective going out there and acquiring utilizing balance sheet capacity isn't really something that makes sense for us in terms of levering up for minimal accretion. When you look at where cap rates are today that Andrew will talk about relative to that cost you're kind of in line to possibly even negative leverage today.
And so going out there and utilize the balance sheet capacity for that isn't overly compelling from an FFO accretion perspective. So I'd say continue with the capital light strategy.
We are building up a lot of optionality within the development pipeline. And we've got plus or minus four deals that could start in the next 12 to 18 months.
So we continue to try to whittle cost out there, wait for rents to come our way, wait for yields and cap rates to keep coming our way. But I think that's where we'll lean in as we get more conviction on the cycle and the cost of capital.
Andrew Kantor
As Joe mentioned, we're going to continue our capital light strategy. We're focused on underwriting deals and presenting those to our joint venture partner.
But for the most part, what we're seeing in the market today is many of the large heavyweight firms have signaled that the markets have bottomed out. Cap rates today are plus or minus 5% based on location.
The thing that we're seeing that's a little different than we have in the past is that rates have normalized across different markets, and those with higher growth are trading lower -- or trending lower, and those with slower growth are a bit higher and we're seeing that across the board. We're also seeing investors make decisions based on discount to replacement cost in the markets where there's a large disconnect between the cost to build and the cost to buy.
We're seeing increased activity in certain buyer groups and that's also helping on the IRR as many investors are able to push reversion values down -- push cap rates down and the reversion to push values up, and their IRR up as some of these markets have substantial discounts to replacement cost.
Jamie Feldman
Just to confirm, so you're seeing that cap rates are -- there's a gap in cap rates between higher growth and lower growth markets? Like what's the delta between the higher and lower growth?
Andrew Kantor
I mean, I would say that cap rates are anywhere from 4.75% to 5.25% for the majority of the assets that are trading today. And so in markets where you don't have a discount to replacement cost and you have low growth, you're obviously going to have to -- those assets are trading at the higher cap rate and then where markets where you have high growth people are willing to push harder for that and that pricing is going to be at the lower cap rates.
Operator
Your next question is coming from Nick Yulico from Scotiabank.
Daniel Tricarico
It's Daniel Tricarico on for Nick. A question for Mike.
With respect to the incremental 60 basis points rental rate growth for the year versus the initial guide. Could you put some numbers around how that changed between your different regional exposures?
Mike Lacy
I think, first and foremost, when you think about the 60 bps, what we're assuming for the back half of the year is renewals being, call it, that 4% range, so it would have to be closer to negative 2.5% to get to that number. And so when you think about what that means by region, obviously, we're still sending out 5% through September at this point.
There's not a big difference between regions. I'd tell you at the low end, we're probably closer to 3%, 3.5% in the Sunbelt, slightly above that on the Coast.
And then when you get to the new lease side what I've been seeing is negative 5%, negative 6% in the Sunbelt. Expectations are that could get a little bit worse as we go into the back half of the year just given that supply is going to still be peaking and you have less demand.
But with the Coast, you're probably coming down marginally but not anything significant.
Joe Fisher
And relative to kind of first half, that 60 bps pickup that we saw, we continue to see Sunbelt operating about as expected. The positive surprises have really been coming on the Coast.
And I think as we talked about before, DC has been a nice positive surprise for us as well as, San Fran and Seattle picking up on the West Coast. So it's really been the coast of driven the upside to that improved blended lease rate expectation for the full year.
Daniel Tricarico
And actually just following up on DC, there's obviously -- it's been outperforming this year. There's obviously been some benefit on the election and maybe the defense sector spending.
So just looking ahead, would you anticipate some level of normalization into next year, especially maybe considering a potential change in administration?
Mike Lacy
I'd tell you, first, what we're seeing there, just size of this market, D.C. has been doing tremendous over the last 60, 90 days.
And again, this is 15% of our NOI market. So a very important market for us.
We're 40% urban, 60% suburban. Occupancy is in the 97% range today and blends were 5.9% during the quarter compared to 3.4% in the first quarter.
So DC has been a strong performer for us. Expectations as we move forward, we're going to have a little bit more supply down around the 14th Street corridor also along the Navy Yard.
So we'll continue to see a little bit of pressure there. As it relates to just demand and job growth there, it's too early to tell kind of how that shakes out.
But right now, we feel good about that market.
Tom Toomey
I would tell you, election cycles, particularly presidential and the impact on DC, there's not much of a bump. It just turns out these guys put on new jerseys and go to work for somebody else and stay in the marketplace.
So I think the dynamic in DC that could change is returned to office and if that takes root and sees a significant return to office, if you will. So we'll wait and see how it plays out.
I think we know in about 97 days kind of where that one is going to play.
Operator
Your next question is coming from John Kim from BMO Capital Markets.
John Kim
I wanted to follow up with Mike on an answer you gave to Austin's question on new lease rates in July. And I know we don't want to focus too much on one month of data.
But I think you mentioned that the July was down 5% to 6% in Sunbelt, up 1% to 2% in coastal markets. That would basically imply that the weakening of the July rates was driven by the coastal sequentially versus Sunbelt.
I just wanted to make sure that was the case.
Mike Lacy
John, it's kind of across the board. Like I was saying, when you go from May to July, we saw a little bit more deceleration in the East Coast and now it's probably more specific to a place like Baltimore.
New York, DC, they were humming right around 5% to 6% growth. So they've come down a little bit.
But for the most part, it's been across the board in terms of new lease growth. And at the same time, we're seeing renewals actually a little bit higher than the Sunbelt today than we were seeing back in May as it relates to some of the coastal markets, upwards of -- we're pushing around 4%, 4.5% in July versus sub-3% back in May in the Sunbelt.
And then I'll tell you for the coast it's up closer to 50 to 70 basis points. So a little bit weaker on the new lease side, a little bit stronger on the renewal side and the Sunbelt right now.
John Kim
And then, Joe, you mentioned looking at potentially four different development starts over the next couple of years. What kind of development yields or IRRs do you need to achieve to move forward with those?
And you compare that with your DCP investments where you're investing in [indiscernible] or do you compare that versus acquisition yields?
Joe Fisher
So from a development yield perspective, I think the absolute yields that we're seeing available in the marketplace today are actually quite compelling relative to history. The challenge is a little bit was a spread investor relative to either where cap rates are that 5% or our own cost of capital, that's what keeps us a little bit cautious still from a new start perspective.
But what we're looking at on those deals is generally on a current basis kind of in that high 5s type of number and then obviously trending higher. So day one, you're kind of looking at a plus or minus 75 to 100 basis point yield differential versus comparable cap rate in that market for that product type and then growing over time.
So that's kind of how we're thinking about that piece. We are thinking about, as we've done over time, I think one of the good things about our platform is by investing in a lot of different areas, be it development, DCP, acquisitions, joint ventures, into the platform and to read out whatever it may be, we do tend to pivot and flex those within reason.
And so we are looking across DCP and acquisitions as we compare and contrast the returns on the risk. That said, the acquisition side, we are trying to allocate capital there with our joint venture partner, which, as you know, has been a little bit slower.
DCP, I'd say, we're a little bit more in that steady state part of the business, that's kind of just under 3% of enterprise and earnings right now. So we feel comfortable with it there.
So that's probably more of a recycling piece. So a little bit less of a pivot and compare and contrast amongst DCP and development.
Operator
Next question is coming from Rich Anderson from Wedbush.
Rich Anderson
So just a broader question from me. When you think about the challenges that lay out -- I know you're kind of laying out some conservatism in your numbers for the back half of the year.
But when you think of the compounding impact of supply, some stuff that's delivered but 40% or 50% finished. Other stuff that's just getting delivered now is maybe 10% occupied.
Are the challenges ahead tougher than they were in the rearview mirror or do you feel like you're kind of past the worst of it right now, when you consider some of the jobs numbers you mentioned and income growth and all that sort of stuff? I'm just curious where your mind is from that standpoint.
Joe Fisher
I guess, maybe kicking it off and others may jump in. As you look at where we're at, let's kind of fall back to last year, kind of September, October, November time frame, that's really where we saw that increase in concessionary activity as deliveries start to ramp up.
I think we are in a very different market than where we're at that point in time, right? You look at the capital environment, obviously, and we had a pretty big surge in rates, a gap out in spreads, you also had a drying up of capital availability.
And at that point, we were talking about cap rates potentially being in the high 5s up to 6% type of level. So a very different capital environment at that point in time.
Also, if you're a developer, you're in kind of seasonally weak period of time, plus looking up at a big stack of deliveries in the year ahead. So a little bit more nervous as you face a refi and think about your rent roll.
So I think we've kind of fast forward to a different environment where we, obviously, to date, have avoided the recession, supply, as you look forward over the next year, over the next 12 months, it's better on deliveries than it has been over the last 12 months and the capital environment and demand for assets is much better than anticipated or at least as it was last 4Q. So the environment definitely feels better.
That said, we continue to have deliveries that are kind of at levels that we saw in 2Q and 3Q and going into 4Q. So I think that's what keeps us cautious is we don't want to get out over our skis knowing that there's still macro risk out there.
And there's also a macro opportunity if jobs keep coming in better, household formations keep coming on better. So it's kind of right to be cautious for now, get through that seasonally weak period of time.
And hopefully, we put up better numbers than what we've laid out here and then we'll report back on them and see how that year ends up, but for now being prudent.
Tom Toomey
It's a very provocative question. And it really depends on the time horizon you're trying to look through.
And my perspective, the last five years we see more volatility and challenges in the business that we'll probably see in the future. And this feels a lot more like fundamental blocking and tackling type business, which is going to benefit the companies that have diverse investment base and diverse value creators.
So as we think about the future, it looks like interest rates are going to settle around about 5%, we're going to continue to print deficits. And that's a very financeable product, meaning multifamily.
Supply demand fundamentals always in a shortage. Can you time out the window when you get into a market and when you get out?
I think we've been pretty darn good at that. And then at the core, can you operate it better than anybody else in the space, and we're really focused on that aspect.
So we think all the value creators that we have built over time have an opportunity in the future. And we've got to be smart about pivoting to it.
The window in the short run, seen supply quite a bit bigger than this in market basis. It just takes time to absorb threat, price it, adjust.
There will be opportunities in those markets. And then it is United States.
It is a resilient, capable country that always finds a way to grow. So I'm encouraged about the future.
Grateful for the last five years were kind of in the rearview mirror for us.
Rich Anderson
The second question, both EQR Avalon Bay are looking at 25% exposure to the Sunbelt, you're already there. I wonder imitation best form of flattery, I don't know what to make of that.
Is that the efficient frontier, though, in your mind, that balance of coastal versus Sunbelt when you've gone through what you're going through now?
Tom Toomey
I think it's an interesting question. Joe probably have a lot more thoughtful answer.
We like our balance to present. I like what Chris and the team have done when they look at it on an analytical basis and trying to uncover cities of the future, if you will.
If you realized 10 years ago, Nashville was kind of a warehouse of capital for us and turned out to be a dynamic city that grew tremendously, Austin, the similar type aspect. So trying to find the next wave of cities that will prosper in a new economy, I think it's really kind of where we're thinking about.
We like the base that we're starting with. We certainly like the theory of buying the one next door where we have a low risk, high success rate.
So I like the platform as is. We'll always look at kind of what markets we need to grow to and which markets we need to shrink.
But that's a dynamic aspect that we sit back and look at three year windows, five year windows and 10 years.
Operator
Next question is coming from Adam Kramer from Morgan Stanley.
Adam Kramer
Just looking at the same store revenue guidance range, it looks like it's a 200 basis point kind of range low end to the high end. If I compare us to the peers or compare that to even kind of your own guidance range in the past and in the second quarter, I think it's a bit wider than those.
So just wondering, thinking about kind of your comments earlier, too, about kind of an unchanged view with regards to the second half relative to your guidance earlier in the year. Wondering kind of what drives that wider range of potential outcomes for kind of the second half of the year?
Joe Fisher
I mean there's certain specific drivers as you go in, right, between occupancy volatility, do we continue to have a great performance in other income as we have in the first half, how does lender lease rates and market rent growth perform. And so given the aspects of volatility that we kind of laid out there and the unknowns, it just felt prudent.
I think it's not lost on any of us here on this side of the table at least that last year we probably tried to get a little bit too tight and get a little bit more accurate as we went into the back half. And we are surprised with a little bit of a swing in activity in September, October, November.
And I don't think anyone here has the desire to repeat that. And so does a wider range help with that?
Of course. Does being conservative in the back half help with that?
Of course. So I think it's going to be about how do we finish the rates, not how do we update throughout the year.
So hopefully, we can deliver strong and be talking about it on our third quarter call as we kind of have greater visibility into closing out the year and then, of course, the earn in into next year, which we're clearly very focused on as we push these renewals up.
Adam Kramer
And then just kind of maybe tying back to your answer, Rich, from a couple of minutes ago. Just thinking about kind of the cadence of deliveries, you mentioned this fall, obviously, into next year.
And then again, not asking you for a specific month or maybe even a specific quarter here. But just thinking about kind of when pricing power will return in the Sunbelt, right, kind of given the cadence of deliveries.
When do you think you'll be able to kind of push pricing kind of push market rent growth again kind of above and beyond the typical CECL curve?
Mike Lacy
It's something we're going to continue to monitor very closely, Adam. And I'd tell you right now, it's -- you're not going to see new lease growth go positive here in the near term.
But obviously, as we turn the corner next year, you're starting to anniversary of easier comps and you are seeing us get a little bit more aggressive as it relates to renewal growth. So could blend start to go up as we get into next year, I think they could.
But for now, we're taking a day by day and obviously looking at our total revenue growth as our strategy going forward.
Operator
The next question is coming from [Indiscernible] from UBS.
Unidentified Analyst
Just one for me. To get a better apples-to-apples comparison with peers who are seeing a same store revenue benefit from improving bad debt.
Do you have a calculation for what your same store revenue growth would be if you were using the same or similar accrual process as peers?
Joe Fisher
We do not have that. To be honest, I don't think any of us really provide full and absolute disclosure on methodologies.
I think all of us try to utilize the methodology that's most appropriate and what we believe best represents kind of the existing residence base and AR that we have. And so we've been very consistent throughout on our approach.
I don't think we have necessarily the same volatility that perhaps others do as you have residents go in and out of the different pools. But I think it has worked for us, I'd say we're roughly 50% reserved today on our total AR balance, which really is meant to cover what those individuals are that are in eviction at this point in time that we don't think they are going to be collectible.
The rest is due to our typical slightly late payers or payment plans that may be out there. So we feel good about where we're at today.
We continue to see long term delinquents come down in the portfolio. So we had been stuck at kind of 250 or so long term delinquents.
I think a lot of the activity that we've had from a screening perspective, from a credit standard perspective, process improvements, we've gone under 200 on that front, so that's helping whittle down some of that AR and the need for reserve. And cash collections, obviously and versus that, they continue to improve a little bit on the margin.
So we've seen first half bad debt come in a little bit better. So maybe it's help in the numbers plus minus 10 bps year-over-year.
We believe there's more to come in the second half as we get these long term delinquents down in some of the screening we talked about earlier. So hopefully, that is a upside to our numbers as we go forward, but it's hard to say what peers would be at.
Operator
Next question is coming from Alexander Goldfarb from Piper Sandler.
Alexander Goldfarb
I'll just ask one question. There's a lot of discussion over this early peak of June versus is there going to be a double peak.
You guys have obviously talked about the nuance and what's going on leasing East Coast, West Coast, Sunbelt. But it really seems like we're splitting hairs.
I mean most of the percentages are within a few points of each other and generally almost seem like normal seasonality volatility like normal course. So is your view that what you guys are talking about and what we're hearing from peers is really anything other than normal seasonality and normal variances or are there truly specific things that you're seeing that give you true pause?
Joe Fisher
I don't think there is anything that's giving us true pause today. Mike talked about still being at the 1.8 residents per unit, the collections, the traffic.
The volatility in our blends, as Mike talked about, is really the result of a pricing strategy. We felt really good in April and May with high occupancy.
We are seeing good traffic. We're going into the first part of leasing season.
So if you're going to test rents that's the time to do it. We were seeing really good numbers.
So we pushed aggressively. Mike said, we pushed over 2x what we normally would at that point in time.
And ultimately, the market reacted. We tried to push, market reacted, we lost a little bit of occupancy and we pulled back, we found the equilibrium.
And so that's why occupancy stabilized, that's why news and blends are stabilizing here. So I think that's the volatility.
If we didn't do that, I don't think we'd be doing our job. We saw a window to push, we pushed it the right time of the year.
At the same time, I think Mike has talked a lot about kind of the separate pricing strategy that exists on renewals where retention and customer experience are going great. And so why don't we push there and that seems to be working out.
So I think you're right, it's normal course volatility. We're talking kind of 25, 50 bps here and there but it's a result of what we're trying to push and the market push backed a little bit.
Operator
Next question is coming from [Ann Chan] from Green Street.
Unidentified Analyst
Just one question for me. Out of the 300 bps retention improvement achieved in 2Q, it looks like most regions saw around a 50 bps year-over-year improvement.
West Coast a little bit more flat. Could you comment on particular markets or trends by strategy that might cap retention growth a little bit more muted relative to the other regions, and how that reads through for the rest of the year?
Mike Lacy
I would tell you, with some of these regions, you do have some markets that have a little bit more volatility. And for us, I think we have Monterey Peninsula where we do have migrant workers that come in and out of that market.
So that's typically higher on the turnover. But for the others, it's been pretty consistent.
We've seen a decrease pretty much across the board. And while some of this has to do with the fact that we have just far fewer people moving out to buy homes pretty much across the board, a lot of this has to do with all the things that we put into the customer experience project.
And again, we think that this will continue to pay dividends. But Joe just mentioned it again as well, we do want to test our rents as well.
And so we'll look at different levers to see what we can drive through this initiative. But so far, so good.
But again, West Coast, you have to really dive into some of the markets and I think a lot of that was driven by [Salinas].
Operator
Your next question is coming from Linda Tsai from Jefferies.
Linda Tsai
Just one question. Sunbelt market from where you sit today to see new lease growth hit flat or slightly positive soonest?
Mike Lacy
Not Austin. Austin is continuing to see probably the lease growth, and I expect that's going to continue for a little while.
Starting to see a little bit more inflection in places like Florida for us compared to Texas. And so maybe we could see it in Tampa as we go into next year.
But right now, I'd say, Texas is probably a little bit more under fire followed by Nashville and then Florida would be third in terms of Sunbelt markets.
Operator
Our next question is coming from Mason Guell from Baird.
Mason Guell
On the preferred equity investments that are maturing soon, what are your plans for these investments now the associated assets stabilized?
Andrew Kantor
So if you look at the numbers that are in the supplement for the maturity dates on those different investments, those are without extension options. So currently, all of the DCPs that are maturing within the year have some form of extension option available.
So we're talking to those developers, those developers are looking at different opportunities to either recap their asset, to sell their assets or to extend their asset, but each is a different conversation.
Operator
We reached the end of our question-and-answer session. I'd like to hand the floor back over to Chairman and CEO, Mr.
Toomey, for closing comments.
Tom Toomey
Thank you, operator. And thank you all for your time, interest and support of UDR.
We look forward to seeing many of you at the Evercore ISI and Bank of America Conferences in September and other upcoming events and tours. So with that, enjoy the balance of your summer.
Take care.
Operator
Thank you. That does conclude today's teleconference.
You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.