UDR, Inc. (UDR) Earnings Call Transcript & Summary

Welcome to the first afternoon session of our 2022 Real Estate Conference. I'm Joshua Dennerlein, and I cover the residential REITs at BofA. I'm pleased to have with us today UDR's president and CFO, Joe Fisher; Senior Vice President, Property Operations, Mike Lacy. So Joe and Mike have a few opening remarks. Then we'll jump in to Q&A. I'd love to take this as interactive as possible, and we'll have time to jump in when you need it. And with that, I'll pass it over to UDR's team.

Perfect. Thanks, Josh, and thanks, everybody, for joining us here today. Look forward to the discussion and presentation. Maybe just a couple of introductions. You got the two of us. We have a couple of more of us sitting around the room. So Patsy Doerr over here against the wall. She could raise her hand. So she is our new Head of ESG and People. So going to be the individual that oversees all that plus a number of other things for us. So Patsy is in the room. Christopher Ens is back here, who most of you know from -- overseeing the IR, Predictive Analytics, Portfolio Strategy and Regulatory. And then Trent Trujillo back here to the left, and does most of you through the IR function plus his days on the sell side. So that's the team we have in the room today. So again, thanks for coming. Hopefully, everybody has presentations there in front of them that Trent handed around. So with that I'm going to give a quick update for those of you that are probably a little less familiar with us in terms of what UDR does, what we do and then kind of get into the current state of affairs, just a couple higher-level talking points. So in terms of UDR, we are an S&P 500 multifamily REIT, about a $25 billion enterprise. Roughly 60,000 units across the country, really diversified by market, price point, location. When you think about our market exposures, it's really a smile around the U.S. So we have roughly 1/3, 1/3, 1/3, East Coast, West Coast and Sunbelt. In terms of the strategy, at the core of our strategy is one of diversification. And we mean that by market, by how we use capital and by how we source capital. So a number of different avenues by which we typically deploy capital, meaning acquisitions, development, our developer capital program, redevelopment, our platform and our tech funds. We also source from various avenues, as you've all seen in the last couple of years, be it free cash flow, dispose, equity, debt, what have you. And so a diversified platform overall. The idea is really that we are a full cycle play. That diversity gives us a number of avenues by which we can pivot in terms of deploy and sourcing capital. Also, of course, dampens volatility as different markets go through different barriers and cycles at different points in time. So that's the overall strategy. It's really augmented when you think about how do we want to generate alpha or outsized returns on a relative basis, augmented by innovation and what we do on the capital allocation side. So innovation, I think, is one thing we've been known for over a number of years as it's really led to same-store NOI outperformance and FFO outperformance. And Mike can dive deeper into that as we get into the discussion. Same with capital allocation. We are typically more active than a number of peers in terms of sourcing external sources of capital, going out there and deploying those accretively into acquisitions, dev or DCP. So that's the overall strategy. In terms of news, we did put out the presentation last week. Really, a couple of things to probably to highlight in there. One, of course, the current state of affairs in terms of where do we stand and our markets, our operations. Secondarily to that, where we headed in 2023 seems to be the current hot topic, at least in the morning sessions that we've had. And then anything on capital allocation. So I'd say, first off, in terms of the current state of affairs, consumer remains strong. When you look at job growth and wage growth as well as relative affordability for multifamily relative to single family, we are in an excellent position today. So when you look at traffic, when you look at concessionary environment, which is de minimis, when you look at cash collections for us, when you look at underlying pricing power and the movement in rents on a year-to-date basis as well as here throughout the summer as well as our blends, everything continues to screen relatively favorably to us. So all that sets us up well for what we think is going to be a pretty good sequential revenue number. We put in here that we're going to do about 4% sequential revenue growth in the third quarter as well as 12-plus percent on a year-over-year basis, both of which we think screen relatively well when we look across where others have implied here for the second half. So current market environment feel really good about. As we head into 2023, which we get a lot of questions on, Mike has talked a lot about our 5% earn-in as we head into next year. That 5% earn-in basically factors in what are we going to do for the rest of this year as long as we hit the midpoint of guidance and then assuming no blended lease rate growth next year. So if market rents don't move at all for us, we don't move anybody to market next year. We still have a 5% revenue growth number to start off the year. On top of that, then we do have the opportunity from loss to lease capture, which we think at year-end is plus or minus, call it, mid-single digits. We also have whatever market rent growth comes to fruition next year. And then we have a number of ancillary items that I think we've shown leadership on in the past, which really comes into what do we do on the innovation side, and we've talked about the $40-plus million of innovation items we've identified for the next couple of years that start to come into play next year and years thereafter. So the fundamental set up next year independent of, call it, macroeconomic environment feels really good given some of those baseline expectations. Beyond that, we do have a couple of other levers that I think we're pretty excited about given the years that it's taken to get them into position. So on the development front, this year was a tougher year from a development accretion standpoint given that we had $400 million of assets coming into lease-up. So there was a relative drag on our earnings growth this year. As those start to stabilize towards mid-6s returns, we've got about $0.05 of earnings accretion coming in '23 and '24 from that piece of the story. On our developer capital program or pref and mezz lending platform, we've been fairly active here in the last 3 or 4 months on deploying capital there, which as that gets funded and earns in, we think that's a relative tailwind for us from an earnings perspective. In terms of the balance sheet, sitting in a pretty good position today as we got pretty active over the last couple of years on prepaying a lot of debt maturities. So our maturities through '23, '24, relatively de minimis. So with rates having moved higher, the rate reset risk or interest rate risk that we face today does not feel like a big headwind for us. That said, I will say the one area that I think all of us are focused on and continue to see pressure on is expenses and G&A. We are seeing continued pressure there as we referred to in our presentation here, but I don't think that's any different than anyone else. In addition, we've got a lot of plans on the innovation side to keep attacking that piece of the equation. So it kind of gives you a little bit of the '23 story. And then lastly, I'll be quick on the capital allocation side because with cost of equity and cost of debt where it's at today, really not a lot of activity. We've got a phenomenal liquidity position as it sits today. Still got about $300 million of forward equity commitments that we raised earlier this year at much higher prices. So from a capacity standpoint, we have that plenty of land capacity, plenty of free cash flow at $200-plus million a year to fund what's a relatively de minimis forward funding commitments that we have out there on development in DCP. And so liquidity wise, in a great position. Debt to EBITDA continues to trend lower with earnings going higher and should be mid-5s by year-end. So no concerns on the balance sheet, but not a lot of activity out there in the market right now. We are sitting back and observing and trying to understand where pricing is at, at this point in time. So it's really the overview for UDR, kind of current state of affairs and background, but I'll kick it back over for some Q&A here.

Thank you. Appreciate all that. Maybe to kind of expand on the building blocks we laid out, what are the number -- I think it's actually the #1 portion to get is on the macro environment and potential recession. Stocks almost feel like they're half pricing and they have not. Could you maybe walk us through the kind of recession by year-end meaning December 31, like what that would potentially do and what we laid out to 2023? And you have [indiscernible] portfolio net earnings?

Yes. I hope when you say half priced, we're fully priced in at this point. But time shall tell. As we look back, we've done a lot of sensitivity analysis in terms of where past recessions have taken us in terms of market rent growth across to our markets, what that means for NOI and therefore cash flow growth. I'd say, generally speaking, without fail, the last 3 recessions have taken us down as a sector, about plus or minus 10% from a same-store NOI perspective. There are markets that have more puts and takes than others, but 10% seems to be the baseline. That said, we have never come close to entering a past recession with this type of setup in terms of the tailwinds that we have, be it on a macro front from relative affordability. We've gotten just as stretched from an affordability perspective, meaning single-family relative to multifamily as we were back in '06. So after we entered that '06 period of time, obviously, the market shifted to more of a rentership environment as we captured more than our fair share of housing over those subsequent years. So I think we have a macro tailwind there. The earn-in that we talked about previously at 5%, that is by far the highest in our history. So we've never sat here with a 5% earn-in. Mike, your best earn-in prior to that would have been what?

It was actually 2.6% that was coming into this year.

Yes. So we're 2x the highest earn-in, which if you do go into a macroeconomic slowdown and rents start to tail off, we do have that earn-in as a tailwind. We also have loss to lease, which we think is mid-single digits by end of this year. And that would be higher than our typical flat as we enter the year. So I think there's a number of items that help insulate us. And then you get into some of the innovation items that are just kind of gravy on top of that. But if we do go into a job loss scenario, if wages slow down meaningfully, if the consumer gets crunched, we may go into an environment where rents start to go negative. But I think the tailwinds for us on a relative basis is set up pretty well.

Exploring net loss to lease and just to layer on that 5%, 6% for revenue growth you're talking about at this point, how much additional fees in that be?

So just to put in perspective, when you think about that 5%, we have visibility on basically 85% of our leases this year signed through September. We have a pretty good idea of what 4Q will be. So that leads into that 5%. That loss to lease is pretty much baked at this point. When you think about next year, and just to put it in simplistic terms, the earn-in is going to make up 50% of our revenue, right? So then you get into the blends of next year, pre-COVID numbers, we're used to seeing around 3% to 4%, mid-year convention on that gets you anywhere from 6% to 7% just on the base. So we'll see what plays out over the next few quarters, but market rents have been holding up better than we would have expected as we've kind of finished the 3Q numbers here.

I think there's a lot of [indiscernible] understand. I guess 2 questions. One, will that cost lease, is there anything kind of will be back in '23. And then also just what typically happens in what your period in? What are you expecting -- is this time difference?

Well, it's more seasonal in nature to what we experienced pre-COVID and what we're seeing right now. And Joe mentioned it. By the end of the year, you typically see your loss to lease basically evaporate and it can go close to 0 before it starts to inch back up as you move into the summer months. That being said, we're in a higher position today. Market rents have held pretty steady. We actually saw about a 60 basis point increase in August. So it's allowing net loss to lease to stay kind of stagnant and not drop at this point. So it's a little bit higher than we would have expected.

I think on the -- in terms of the ability to capture that loss to lease, you do have a few regulatory constraints that we're faced with. So if you go out west with things like AB 1482 at CPI plus 5 or up in Oregon, they have CPI plus 7. If you come here in New York, we have a couple 421s that start to burn off here over time, but you do have some caps there. You also have a lot of rental rights either in place today or that may have momentum regulatory-wise that if you have to give a 180-day notice period on a renewal, I think we naturally will be more conservative as you think about 180 days of how much of that rent can you capture, you may play it a little bit more conservative because you don't know what the next 180 days are going to hold in terms of would you want to retain that resident or not by the time you get 30, 60 days out. So you'd like to capture a lot of it, but will we capture all of that mid-single digit loss to lease next year? Probably not. That just means it's left over to recapture in 2024.

The $40 million of upside of innovation against customer experience initiatives, is [indiscernible] 2025, how much of that is going to be flowing to kind of the bottom line or top line in 2023? And was there any in 2022 which you adjust for?

Yes. I think of the $40 million within 2022, we've already have $5 million or $6 million coming into our numbers. So I'd say that leaves about $35 million. When you get into next year's numbers, it should be another $5 million to $10 million that comes into either top or bottom line coming through existing innovation. And so the $40 million, this is really everything beyond Platform 1.0. So 1.0 was to focus on operational efficiencies, centralization, going to self-guided tours, creating the data hub, that was that first $20 million. So this is the next $40 million, which is a little bit more top line focused. I'd say the big item within that, we are focused on rolling out bulk WiFi throughout the portfolio. And so we've started that with approximately 10,000 units this year. And so we're hopefully going to get to 50,000, 60,000 units by the time we get to 2025. There are some supply chain constraints on that. And so that's really the piece that probably holds us back more than anything, but that spend over time is going to be up $50 million of spend, but probably $15 million to $20 million of NOI. And so we're talking about 30% or 40% return on investment. For the consumer, it's obviously a much better experience because it's not just in-unit WiFi, it is throughout the property. The pricing is competitive and/or better with a lot of the telecoms. You also have WiFi day 1 when you move in. So that's helpful there. It's helpful for our operational teams in the field where you have debt sell service, may not be able to get access to that or vacant electric that we want to control. And then ESG wise, it's going to be huge for us at some point in terms of getting in-unit control of all the appliance packages as you start to have more smart appliances installed over time. And so that's the biggest one, but that takes 3 years to get to a full rollout of that $40 million, that's $15 million, $20 million of it.

Maybe just on the DCP, you had debt DCP [indiscernible] 2022. Just kind of curious what the backdrop is for that program as you kind of headed into 2023?

Yes, still a fairly significant demand. So developer capital program for us, it's by way of background, started in 2013. So we've been at it for 9-plus years at this point. This is basically where we're doing mezz or pref lending, call it, 65% to 85% of the development stack to developers at a preferred return, be it fixed rate or fixed plus a participation percentage. And so today, we have about $0.5 billion of that business outstanding with -- bifurcated between both development assets as well as recap operational assets. The interest in the business today is pretty strong given where we're at from a start and permit activity perspective. I think everyone is seeing the starts for multifamily have remained plus or minus in that $0.5 million range -- or 0.5 million unit range, rather. And so still plenty of demand from developers to fill in their capital stack. Similarly, on the recap side, with the transaction market a little bit more influx in terms of where pricing is going to land as well as when you look at just the cost of senior financing and the proceeds you can get off of that, there's plenty of demand for recaps as well today. So we're seeing more activity on that front. But we're a $0.5 billion book of business today. We do have maturities that are constantly coming up that we're looking to backfill. I'm not sure we're going to go materially beyond $0.5 billion, meaning maybe we go another $50 million, maybe $100 million but we do not have endeavors today that we're going to say going to take us up to $1 billion in that book of business. So we like the accretion. We like the IRRs. We like the optionality of being able to get access to some of the assets on the back end. But at the end of the day, a $0.5 billion, it's a couple of percent of the overall enterprise, which feels appropriate.

About the demand thing, what are you seeing as far as demand for second half of this year into '23?

Yes. It's different by market, obviously, property by property. But what we are experiencing is still limited concessions pretty much across the board. We're seeing in pockets, parts of D.C., parts of San Francisco, even parts of Boston at this point, anywhere from 1 to 2 weeks. As far as traffic goes, on a year-over-year basis, we're up around 7%, which just to remind everybody, last year, it was anything but seasonal. We're actually seeing a really large increase in traffic. So it's pretty promising at this point.

For San Francisco and D.C., I guess, can we drill a little bit deeper into those markets, especially San Francisco, that's probably the hottest market?

Yes, San Francisco has been relatively strong for us. And one thing we've been watching very closely, obviously, is our rents and the fact that we are finally positive from pre-COVID levels, it is very promising. The concession levels that we're experiencing there, it's about 2 weeks down in that San Mateo as well as Mountain View area, just given the supply that we're seeing. Downtown San Francisco today, 1 to 2 weeks. And I'll tell you sequentially, when you look at rents on a cumulative basis for the year, we're up around 10% to 12%, which compares to about 5% for our portfolio average. So right now, it feels like we have a little bit more tailwind in San Francisco, which gives us confidence that it has a little bit more upside as we go into next year.

What's the kind of debating internally and also with investments, I feel like it's no real consensus. If you guys have such a diversified portfolio [indiscernible] some developers also in the game, how do you see that evolving over the next 12 months?

It's a great question, and it's nice to be diversified. We do have a perspective on that. I don't know if I'm going to help you out much with it, but bear with me for a second. So when you think about our earning, we talk a lot about 5%. The Sunbelt today, it's closer to a 7%. So that number that's baked in for next year is much higher in that area. That being said, the coastal areas, our loss to lease is a little bit higher than the Sunbelt. That's where we have those tailwinds. And we expect that there's a little bit more upside in market rents as we move forward. So it's a tale of 2 cities, really. It feels like today, Sunbelt is baked. It's strong. There's still a decent growth as we move forward. But the coastal area, it's coming.

2023 is the year of the coastal or is it further out?

It's hard to tell. I'll tell you, the first half of the year, it feels like Sunbelt is still going to lead the way, just given the fact that you do have that earn-in. It's going to take a little bit of time to transition. And so by the back half of the year, yes, we might be able to see the coastal area coming out strong.

Appreciate that. Okay. And the pricing rate growth, discuss your approach to pricing and driving rate growth as a part of...

Yes. If you've been following us, we've talked a lot about it since the first quarter of this year. We started getting pretty aggressive in terms of rates. We are allowing our occupancy to come down pretty comfortable anywhere from 10 to, call it, 40 basis points of occupancy deceleration, with the ability to drive our rents. So we were pushing more on our renewals, I think, than most people. You've seen that play out. We want to capture that loss to lease while we have it today because it's hard to tell what's going to happen in the next 12 months. So for the most part, aggressively driving rents is building up that earn-in for next year. It's setting us up for a strong 2023. And again, it's always property by property, market by market, but overall, very strong.

[indiscernible].

Yes. September is playing out basically the way we expected. And just to put it in perspective, September still has about 10% of our leases expiring. So this is kind of the last month during the whole season where we have high expirations and then they drop off significantly. So what we're seeing right now is around 10% blended growth, around 9% on the new lease side and 11% on renewals. It leads us to that 13% for the quarter that we expected.

So you're about [indiscernible] and given where do you think that makes great, big opportunity for potential risk...

I would tell you, first, overall, we're around 22% to 24% as a whole. To your question around markets, Tampa today, it's a little bit higher. And when I say that it's historically around 19% to 20%, today we're around 23%. So still very low compared to that 30% breaking point that we typically watch but on a year-over-year kind of pre-COVID level, it's up about 300 bps.

I think on the -- go to the inverse side then. So Tampa, Orlando, maybe a little bit more stretched relative to history. San Francisco, to your point on tailwinds in San Francisco earlier. San Francisco has seen relatively similar income growth over time if you go back to pre-COVID levels versus our portfolio average. But we just now got back to slightly above pre-COVID rents. And so that rent-to-income ratio there has actually come down a little bit. So that's another reason that all else equal on the macroeconomic environment, San Francisco feels like it has a little bit more tailwinds than some of the other markets.

And markets like Tampa where it's scratched and [indiscernible] but really increased a lot, any kind of concern there which is still pretty...

It's amazingly strong. And I think when you look at just our blended growth, when you see our 2Q numbers and then you see what we have in the picture, you see a deceleration, right? The biggest deceleration where we've experienced it the most is in our seasonal markets. It's New York, Boston, Richmond and Seattle. And it's almost comical for a lot of you that live here in the city, it was 28% growth in 2Q, it's still 22% growth. So that's where we've seen the decel. Tampa specifically, still very strong. Still 97% occupancy. Rent growth is still in that 17% to 20% range. Starting to see more people that are giving notice because it's 2 years now that they've gotten large increases. That being said, the people that are actually coming through the door, we're pricing them at about 27% on the new lease side. So we're getting it from the new people that are moving into the market. Rent-to-income ratio is still in that, call it, 22% to 23% range. So Tampa is still very good. And when you fast forward and look at the supply, it's not as scary as some of the other Sunbelt markets as we move forward. So we still feel pretty good about Tampa.

[indiscernible].

So go through -- so the 16%, that's for individual's app in terms of income qualification. So whoever has an income. So there used to be 2.1 individuals on that app, if you will, that had an income associated with it. Now there's 1.8. And so you have fewer individuals either living in that unit or living in that unit and working at the same time. So it's -- it's that net income that's up 16% versus pre-COVID.

[indiscernible] it's rent.

The income that you're verifying. And so if you have -- if you're qualifying rerenters on a 3-bedroom, it's going to be in totality.

You're requiring renters [indiscernible]

Yes, it could be. You have to be 18 years old to be on that application.

There's been a question, Sunbelt in particular. Have you seen a lot of ups or down there? If that may be probably driving that 16% [indiscernible] and then on upside, is there any reversal back for back to the office?

So first of all, when we look at our migration trends, people moving into the MSA, moving out of the MSA, they're back to pre-COVID levels. So there's not really a difference and then as we've talked throughout the pandemic, we didn't see as many people coming from coastal areas moving into the Sunbelt to rent from us. What we did experience, people are moving down there. They're actually buying up the real estate and they are pushing people out from within the MSA into our apartments. So we actually saw kind of more of a transition of the people within the areas just becoming renters.

[indiscernible] maybe kind of walk us through what you founded that and see that playing out for...

Yes. If you go back to Page 22, all the way at the end of the presentation here, that's the rent-to-own analysis that we had conducted. And we look at this over time. We only went back to 2010 here, but you can obviously run it back much longer than that. A couple of things that come out of it. One is the relative affordability piece that we kind of talked about upfront. We think we're set up for a very good dynamic there in terms of any new incremental household formation, it should be biased towards rentership in this environment. So you see it a lot in Mike's numbers, which we have on a different page here, the move-outs to buy and move-outs to rent single-family homes. So as that feeds into that piece of the equation, you look at move-outs to buy, which typically 11%, 12%.

Yes, this time of year around 11% or 12%, and I tell you today, it's closer to 7%.

So move-outs to buy has come down by about 1/3, which I think a lot of it has to do with this driver right here in terms of where else can they go in this environment. So while multifamily has been raising rents, and I would say in a trailing 1-year basis, yes, it looks like that optically. But over time, we've actually been at about a 4% or 5% trend going back to 2019, which is commensurate with where incomes have been moving since that period of time. So that's why rent to incomes are still static for us. So multifamily has got much cheaper, which should lead you to more of a rentership society, be that within single-family rentals or multifamily, which are somewhat symbiotic in nature.

Yes, how should we think about maybe [indiscernible] soon to become down a little bit, but interest rates are going up? Like how does that play into this kind of analysis going forward?

Yes. If -- so right now, they are, to your point, counterbalancing each other a little bit, as we see in a recent rollover a little bit on the single-family side. But with mortgage rates taken higher recently, they do counterbalance to some degree. To get back to a degree of normalcy, you can have 1 of 2 things, either rents within multifamily and single-family rentals start to outpace single-family home appreciation or you got to go to the more macroeconomic negative view of a single-family home values are going to crash. Therefore, we're going to cut off the short end. Therefore, long end is going to come down and borrowing costs come down with that as well. And so you can kind of get there 2 different ways. Either one, whether you're taking the positive or the negative kind of risk on environment, I think multifamily is more insulated on a relative basis.

Any questions about that? So it's hot topic today with inflation coming out more the people expect it today. And can you maybe walk us through kind of if you expect pressure across your portfolio?

Yes. Let me break it down into controllables and noncontrollables. So for us, that's about 50-50. You think about the noncontrollables, you have taxes and insurance. Taxes make up almost 45% of that, 50% noncontrollables. We're seeing a lot of pressure in the Sunbelt right now. So about 15% growth in Texas; 10% Florida. That's being mitigated to some degree on the Prop 13 in California for us. So taxes right now look like anywhere from a 5% to 6% growth. Insurance has been growing anywhere from 8% to 12%. And then on the noncontrollables, you have inflationary pressure on utilities and then you're seeing a little bit self-inflicted, if you will. So you heard our strategy, we've been driving our rents. We've actively been pushing our renewals. It's created about 500 additional move-outs in the last 3 to 5 months. We expect that to continue while we can still push. And so that puts a little bit of pressure on our R&M and then in addition to that, we're really focused in on retention. So we're trying to keep our employees. Obviously, you've seen us what we've done with platform. We have less people working at the sites today. And we need to keep them. So we've actively been pushing that. We actually just created something called a LSA. It's a lifestyle savings account similar to a flexible spending account and that it gives our employees a little bit of additional pot of money, if you will, that they can use on gas, utilities, phone bills, whatever it may be, and it differentiates from others in the industry to allow us to not only retain but also attract people. So we've actually put that into place that's starting in the fourth quarter of this year, and that will be a run rate expense as we move into next year. So on the controllable side of the house, plus or minus 5%.

I do think, too, just for a reminder for anybody that's a little bit newer to multifamily, margins within our sector were plus or minus 70%. So when you think about those expense pressures on that 30% of the stack, most of it is being driven by the wage complex. There is, of course, some supply chain aspect and energy aspect to that. But most of it is coming through on the wage side, be it personnel or R&M as well as G&A. So we as a 70% margin business relative to most businesses in real estate, we sit in a little bit better position from that. Because I think we're all facing the same personnel pressures and wage pressures, we just have a little bit better margin than a lot of the other sectors.

Yes. And I would add that we talked a little bit about innovation. We're obviously looking for ways to mitigate this. One thing that we've talked about in the past is we have about 25 properties today that are basically unmanned with people actually working on site. We're looking at adding another 10 properties to that as we go into the next year, looking through our budget process right now. We have things we're working with a new vendor rolling out in the next 3 to 6 months. It's actually going to allow us to do a better job when it comes to repair, replace of appliances. It should make us more efficient on the term side of the house. And frankly, we just want to do a better job retaining our talent. So we are mitigating some of the costs as we move forward.

What we're seeing so far and the consultants we're talking to, it's hard to see that we get much relief on that front. I think Sunbelt is going to continue to lead the way in terms of increases we see coming there, really driven by the fact that they've had NOI growth and asset value outperformance here for a couple of years. So they'll continue to lead the way. Prop 13, of course, will be anchored with 2% out in California. So that will be under control. And then I think you get into, if you go Boston, Mid-Atlantic, New York and up in Seattle, you're probably sitting there looking at mid-single digits. So I don't see much relief coming on that side.

[indiscernible].

So we have actually actively gone out and we've rolled out SmartRent across over 50,000 apartment homes over the last 2 years. So that's been rolled out. We do think that there are savings. A couple of examples. With our service guys, for example, they don't have to go back down to the shop to get keys. They can actively get into wherever they need to be throughout the property at any given time. So that's helped us not on just their time alone, and then we do see savings in our insurance because we have monitors in place that if there's a leak, it does detect it, and so it's mitigating some of that cost. But it's hard to quantify exactly how much savings on the expense side. That being said, we have achieved about a $25 premium on every installation of the SmartHomes, and we have achieved that on the top line.

I think the other piece that was foundational to everything we did in 2.0. So when you look at the personnel reductions, when you talk about 40% of headcount reduction in the field, a portion of that was outsourced, a portion of it was in-sourced. Centralized portion of it disappeared permanently. That portion of that disappeared permanently, it's because you don't need as much office staff out there, taking individuals that wanted to we're showing them around the property, working with the leasing process. So without SmartHomes there is a foundation so that they can get in and out effectively. I think you'd lose some of that efficiency on the centralization. So that was, call it, $15 million of that $20 million that came in Phase I.

We're out in time, but we do have pretty rapid fire questions that we're asking everyone. So you guys are at the hot seat right now. [indiscernible] which is the following [indiscernible] based in U.S. public REIT stay, one, risk of buyer rates; two, risk of recession; or three, the rise of private equity and nontraded REIT?

Recession.

Second question is, which are the following of the greatest sectors with specific risks? One, labor issues. Two, supply. Three, liquid capital markets?

Labor.

Then, the final question is, are you seeing any sign post of weakening demand, yes or no?

No.

Great. That's it.

Thanks all. Appreciate everyone's time.